Help through the recession for manufacturers

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      Recessions can hit manufacturers hard, but with the right planning, businesses can stay solvent until the economy turns around

      The UK is officially in a recession. While that’s never good news for businesses, it’s especially bad for manufacturers: as GDP shrinks, there is less demand from consumers, which means lower production of goods and services.

      Manufacturers are like every other business: the big problem is cashflow. Without cash, you can’t pay the bills and if you default on wages, your business is no longer viable. Manufacturers are especially at risk in recessions because the costs of workers, raw materials and energy can be high. When production dips, tight margins may mean tough decisions have to be made.

      During a recession, every business needs to take steps to protect cashflow, particularly in manufacturing. Here’s the good news: manufacturers are often asset-rich, which means they can raise funds against these. Not only do such secured loans come at a better rate, meaning lower monthly repayments, they are also more likely to be agreed quickly by lenders.

      Asset finance

      Rhys Cunnah, Head of Unsecured and Asset Finance says:

      If you have valuable assets in your business, it makes sense to use them to get a better deal if you have to borrow. One thing you should also consider is how soft assets can also work in your favour. Intuitively, most business owners know what a ‘hard asset’ is, but they can often overlook even more value that is locked up in soft assets which they could use to their advantage.”

      If your business looks set to go into “hibernation mode” as demand drops off, Rhys suggests asset finance as a way of making sure your business is properly equipped and ready for when business picks up again:

      If you need to buy new equipment, asset finance gives you more bang for your buck, particularly in otherwise tough times. You will likely find that the right deal will come with perks such as maintenance or even training for machinery. This can take the pressure off some of your running costs.

      Learn more about asset finance here.

      Invoice finance

      If time is money and you can’t afford to wait for an invoice to clear, invoice finance may be the answer.

      Invoice finance can release up to 95 percent of the value of an invoice within days of you issuing it, giving you access to the funds when you need them, not when the customer pays their bill.

      Rhys says:

      Invoice financing will not always be the best deal for you but if you need funds quickly, and are simply waiting for the client to pay up, it could be an option. There are several options for you as a business about how much you raise against an invoice and the process of paying the lender.”

      Read more: our in-depth guide to invoice finance.

      At Swoop, we love grants: help for your business from the government or other institutions that you don’t have to pay back.

      There are a couple of strings attached: first, it’s often the case that any grant money awarded has to be matched by funding from other sources. Whether that’s from your own bank account or you have to borrow to cover it, bear this in mind when you make an application.

      The second thing is that getting a grant can be time consuming: you need to check your eligibility, the size of the project and often your precise location to ensure that you meet the criteria. After all that, putting in an application can mean a lot of research and writing (professional grant writers exist for a reason) – and at the end of the process, there is no guarantee you will get the funding.

      Top tip #1: do not wait until the deadline before you submit your application for a grant. Funds are often awarded before the closing date, so if you leave it too long, the opportunity may no longer be there.

      Top tip #2: grant applications that go through an Advisor have a higher chance of success. If you have an accountant on board, they could make the difference between a successful and a failed grant application.

      Swoop’s grant finder tool makes it easy to locate and apply for the grants for which your business is eligible.

      Read more: our complete business grants guide.

      R&D Tax Credits

      If your business has invested a lot of time and money into R&D, tax credits are a further source of cash, thanks to the government’s R&D tax credit scheme.

      The rules and values have been tightened up recently in response to reports of abuse and fraud in the scheme: the enhancement rate has been cut to 86% (from 130%) and the tax credit rate to 10 percent (from 14.5%). For the RDEC scheme, the rate will increase from 13% to 20%.

      While these changes will make R&D less attractive, they are still absolutely worth having. Check your R&D tax credit eligibility now.

      Final thoughts

      Businesses from every sector are going to find the immediate future difficult. Manufacturers are particularly exposed to some of the issues that are coming down the road and must, like all businesses, know how to protect their cashflow. For peace of mind, it helps to have a plan in place to ensure that they can get by if things go wrong.

      For further ideas about how to improve your cashflow and working capital fast, check out Swoop’s cost of living crisis hub.

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