January 2022

n COMMENT SMEs NEED BETTER ACCESS TO FUNDING SMEs – small and mid-sized enterprises – represent the vast majority of UK manufacturers. According to some estimates, around 99% of our manufacturers are SMEs. But for many of them, access to finance is major obstacle that is limiting their ability to expand and improve their productivity. According to a major new report from the manufacturers’organisation, Make UK, around two-thirds of SME manufacturers have to re-invest their past profits to grow because they cannot find suitable external funding. If they were able to access suitable new sources of finance, 31% say they would prioritise investment in developing products and expanding capacity. Make UK estimates that if the 75% of the UK’s SMEs with the lowest productivity had similar outputs to the top 25%, the UK economy could be boosted by £270bn. It is therefore calling on the Government to help these smaller manufacturers by incentivising banks and financial technology firms to improve their access to funding. Make UK points out that the scale-up challenge for manufacturers is different from other sectors because of the high cost of equipment and industrial premises. Their investment cycles are longer, and their growth is slower than for other sectors. Profits from any investments take longer to emerge, with banks and lenders having to exhibit“patient finance”rather than expecting quick returns. Some companies may even look as if they are making a loss in the short term, before the investment benefit kicks in. The 59-page report, called Start-up to scale-up: Supporting SMEs to Grow , says that the Government needs to understand that manufacturers require heavy investment to expand, with benefits emerging over the longer term, rather than delivering short-term gains. But these long-term rewards can be far larger than for other sectors and the investment can create well-paid jobs across the UK. As part of the report, Make UK surveyed UK SME manufacturers and found, among other things, that: • 45% of themwant to become large business within 5-10 years; • 38% of them have the potential to scale-up and become fast-growing firms (based on turnover growth); • 27% report that improved access to overseas markets would allow them to expand; and • almost 50% say a lack of appropriate skills is their main barrier to growth. The research found evidence that the Covid-19 pandemic has changed how financial institutions assess risk before lending to SMEs, and that they are demanding stricter conditions or asking for more onerous guarantees. According to Make UK CEO, Stephen Phipson, the UK’s SME manufacturers “are being held back by a lack of access to funding, skills, physical space and exporting. The current level of investment in promoting and signposting to available support is not working. Three in five SME manufacturers remain completely unaware of the business support and finance that exists to incentivise growth.” So, if the UK is to realise the full potential of its many thousands of SME manufacturers, it has to make it easier for them to access the finance they need to thrive and expand. The ROI could be immense. Tony Sacks, Editor