The Funding Landscape
Partner RSM UK / Head of Manufacturing Scotland – RSM UK
5 minute read
It is fair to say the last three years have been full of turmoil and risks are still evident – some known and some will be unknown in the coming years. One of the outcomes of this turmoil has been a spike in inflation which is proving stubborn to reduce. This clearly has impacts on engineering and manufacturing businesses in many ways including cost and wage inflation; and the problem of how to pass that onto customers or find ways of absorbing this pain. But the secondary impact on rising inflation is rising interest rates which is the main tool that the Bank of England has been using to try to control inflation and bring it back to a target of 2%.
So, for nearly 13 years the UK base rate has been less than 1%. From May 2022 we have seen this accelerate from 1% to 5.25% as at 3 August, so it is fair to say the era of “cheap” funding appears to be over for the foreseeable and we are now back in an environment where around 5% may become more like the norm.
With that change in funding costs the funding landscape becomes more challenging / interesting – depending on your perspective. Borrowing to fund growth or working capital is generally never a bad thing if properly worked through in a considered manner. The options across that funding landscape go from grants through debt products to equity products, and it is fair to say that the options in each category are myriad to consider.
The current economic climate means any funder is going to be more risk averse, so getting your approach correct first time is going to be important. Also having a range of options across that funding landscape is vital to ensure you are assessing optimum solutions for your funding need now, and into the future.
Having the right information is going to be critical to your success and with technology now rapidly improving the financial management and reporting side of your business, being on top of great board packs, monthly management information and a solid forecast is going to be non-negotiable for any funder. They will expect the best from you and in a format that is informative, easy to grasp and allows them to understand your business drivers.
The manufacturing and engineering sector has various sub sectors to it, and it is clear that overall, it is a vital component of the Scottish economy. The funding landscape will have people who are aware of this sector strength, and you need to pick your funder carefully – do they know the sector, who have they supported, what can they bring to your growth plans etc. It is not all about the money as the terms and conditions from any funder are important to assess and also you need to ensure you have a great relationship with them. What else can they add be that contacts, information, or technology solutions to help with your plans – make sure that you get the funding you need but also make sure you maximise the “added value” aspects as well.
Different types of growth plans will be of interest to the different lenders / providers across the funding landscape so think of what you need the funding for and then align your ask to the various sources across the funding landscape . Grants can be of valuable assistance but may only be part of a “funding cake” where grants are just one slice alongside potentially debt and equity. Ideally you want to keep the number of funders to a minimum as the information needs of many can be more varied and more difficult to manage through any process.
You need to be aware of your internal skillsets as a funding project is not an everyday occurrence in business. Many FDs will have an awareness of how to approach this but perhaps they don’t have the in-depth skills and up to date market knowledge that a firm like us has within our UK wide reach. Thinking this through is vital and it will depend on the complexity in many ways. Discuss with your advisor and check how they can help – it could be you need strategic but limited input through a process or at the other end a full hands-on approach is a better option.
Nothing is ever easy in business but with the right planning and a suitably experienced team around you, approaching a funding project is very achievable indeed. I do feel that the economic environment can only start to improve so making sure you are in the right place to grab growth plans should be at the top of your agenda in the next year.
With my background in banking and my wide advisory experience I work with my clients to improve how they make money or guiding them on future strategy including assessing the funding landscape. My experiences enable me to take a balanced view from the perspective of how the funder will look on the funding request.
Please join us for our Funding Landscape webinar in partnership with Scottish Engineering on 27 September 2023 when we will expand on the above and share more insights to help you with your growth plans! Details of the webinar will be announced soon.
If you would like to explore further, please contact Stuart McCallum.