EEF warns that finance comes at a price

The latest EEF credit survey reveals that more companies are seeking finance and the availability of funds is improving. However businesses, especially smaller companies, report the cost of finance is going up. The EEF said: "Coming on the heels of a sharp increase in investment intentions reported by EEF's Manufacturing Outlook Survey in September, we have seen 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... "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." Key survey findings include: • 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 borrowing fell to 40% - the lowest in our survey. • Small companies are also reporting improved access to finance, but they are also the group most likely to have seen costs increase. Lee Hopley, chief economist at EEF, the manufacturers' organisation, added: "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."