Availability of finance continues to improve for North West companies, but comes at a price – EEF survey

Darrell Matthews, North West Region Director at EEF, the manufacturers’ organisation

Ahead of the next official Bank of England Funding for Lending statistics, the latest credit survey from EEF, the manufacturers’ organisation, reveals that more North West companies are seeking finance as they look at new investment opportunities, and the availability of funds is improving. However, businesses – especially smaller companies - report the cost of finance is going up.

Key findings:

The overall cost of credit increased for a balance of 11% of companies in the past two months, the highest balance since the end of 2012.

The balance of responses on the cost of new finance picked up to 10% following the historic lows seen last time (2%).

Availability of finance was positive on all three indicators, with a balance of 11% reporting increased availability of new credit lines. This is the second quarter running this balance was positive.

Dropping from last quarter’s highs of 52%, the proportion of companies citing no need to borrow fell to 40% - the lowest in the survey’s history.
Small companies are also reporting improved access to finance, but they are also the group most likely to have seen costs increase.

Coming on the heels of a sharp increase in investment intentions reported by EEF’s Manufacturing Outlook Survey in September, there has been a corresponding increase in firms using external finance. And encouragingly the balance of companies reporting increased availability on both new and existing credit lines is in positive territory. In a further sign that Funding for Lending might be having an impact on easing the flow of finance to small companies, this group also saw a positive net balance on the availability of new borrowing.

However, finance is coming at a price, with more companies reporting an increase in the overall cost of credit than those saying it has fallen. Indeed, the balance of responses on the total cost of credit is at its highest since the end of last year. There was also an increase in the balance of companies experiencing an increase in the cost of new borrowing, which was particularly marked for the smallest companies.

In contrast rates and fees on existing arrangements have, on balance, improved since the previous survey.

Commenting, Darrell Matthews, North West Region Director at EEF, the manufacturers’ organisation, said: “The range of indicators across our survey has come off the lows of the last few years throughout 2013. The latest results bring some positive news on manufacturers’ access to finance in recent months as availability of finance had stayed positive for a net balance of firms, including the smallest ones.

“This comes at a crucial time as manufacturers increase their investment intentions and, as a result, more of them are seeking external finance to support these plans. However, the picture is not universally positive as new finance is coming at a price with a rising balance of companies seeing costs increase.

“However, this shouldn’t be taken as a Funding for Lending failure. In the coming quarters we hope to see the scheme deliver greater availability as well as a lower cost of borrowing for SMEs. This should drive more appetite for finance and provide a much needed boost to investment. The clock is nevertheless ticking on the scheme, so continued action to create a more competitive SME banking market remains a priority.”