If you are looking to invest in your business to grow, innovate or become more sustainable, with such a broad range of finance options and providers available, the choices may seem overwhelming.
Speaking to your bank is a good starting point, as they are likely to understand you and your business, and what products and services may meet your needs. There are two things to have in mind.
Matching the funding to the need
If you are looking to finance new assets (property, plant and machinery or vehicles); finance secured by that asset, whether it be a commercial mortgage or asset finance, is likely to be more cost effective, given the provision of security. The term is also likely to match the useful life of the asset.
For working capital requirements, an overdraft may seem like the only option, but once again assets such as debtors or stock can be utilised as security e.g. Asset Based Loans for Stock and Invoice Discounting for Debtors. This links the asset to the debt, reducing the need for Personal Guarantees and/ or Deeds Security, and provides more of a flexible option, whereby the drawdown amount available is reflective of the asset volumes and values held.
Many businesses use overdrafts to facilitate import or export on open account terms, but with the geopolitical uncertainty seen in recent years, it’s more important than ever for businesses to reduce risk. Trade facilities such as trade loans and letters of credit can provide security for both parties, thus helping many businesses negotiate more favourable terms.
Depending on your finance requirement, there may also be grants and subsidies available to support and lastly, it’s important to remember that finance can be used for a broad spectrum of needs including those in the intangible space like innovation and R&D.
Key considerations when applying for finance
The main aspect is the affordability of the finance, which is equally important to both the lender and the borrower.
Usually, lenders will look at your historic performance, as this is a good measure of what the business can deliver moving forwards.
If your historic performance has been variable, it’s important to be able to explain this to the lender. If the purpose of your borrowing will significantly improve profitability, whether due to reduced costs or increased sales, it’s important that you provide evidence to support e.g. energy savings through investment in renewables or new plant to support confirmed new sales orders.
If you are looking to invest in digitalisation/robotics and automation, then it is always advisable to seek the input of a specialist organisation such as the High Value Manufacturing Catapult, as they have significant experience and offer a free initial consultation.
More information on NatWest funding support for the manufacturing sector can be found on the website: www.natwest.com/business/sector-expertise/manufacturing.html
