A modest financial recovery was underway, banks were lending again, property prices were going up, and businesses were, on the whole, flourishing.

Then, of course, the EU Referendum happened, and the result changed everything. 

Last month, in a move that would have been quite inconceivable a year or so ago, Mark Carney, the governor of the Bank of England, announced that the base rate was slashed by half, to a ‘barely there’ rate of 0.25%. It was a move that signalled that borrowing, which was already cheap, was about to get even cheaper, and that savers, who didn’t have much to cheer about anyway, would be dealt even more meagre returns.

But printers licking their lips at the prospect of getting a great finance deals in the wake of the base rate being lowered should cool their excitement, for at least the time being. According to those in the know, the cut in the base rate was more a symbolic act, rather than one which will have any real, tangible effects, particularly for those in the print trade.

“The thing with the Bank base rate is the way it sets long-term lending rates – the rates that matter are the three-to-five-year ones,” says Andy Milsom, head of training and partner development at BNP Paribas Finance. “Those rates don’t necessarily follow the Bank’s base rate straight away – there tends to be a time lag. And the thing is, the rate was just so low anyway. Halving to 0.25% is unlikely to make any tangible difference for most people.”

It’s a point of view that Chirag Shah, founding partner at Nucleus Commercial Finance agrees with. “Personally, I don’t feel that it’s the same as when it [the base rate] dropped in 2008. Is it a game-changer? I don’t think it is. Back then interest rates dropped from 5% to 0.5% – it had a big impact. 

“But from a sentiment point of view, maybe it will. Large corporates will benefit more,” he continues. “A small printer is unlikely to see the benefit from this – his mortgage payments might come down, and that’s about it.”

In all, it does appear to be more of a move designed to bolster the mood of business, according to Roger Aust of merchant bank Close Brothers. “It does signal the government’s determination to support the economy, and that can only be good in enhancing business confidence,” he says.

Modest returns?

The dismal news for savers could, however, be good news for printers looking to raise finance. Prior to the cut, RBS and NatWest warned that a lower base rate may force their hand into negative equity for savers – meaning that individuals or businesses with cash reserves may end up being charged for the privilege of the bank keeping hold of their money.

The low base rate has created a marketplace of potential investors who are happy to take a back seat in a business in exchange for a steady, safe return on their cash. Susannah Addams, partner at Taunton-based accountancy Milsted Langdon explains. “There are a lot of investors out there who are not necessarily looking for high-growth businesses, but ones that are solid and cash generative because returns are poor on money, because of the base rate. They’re looking to build steady portfolios of businesses that are better to invest in at the moment, ones that generate an ‘above market’ return.”

Addams believes that raising cash through these private investors, who typically don’t want to get involved with the running of the business, could be a better option than giving up some of the business to a private equity firm, which is much more likely to take a decidedly ‘hands-on’ role. Private equity firms usually have an appetite for rapid growth, something that printing companies – steadier businesses by nature – don’t usually offer.

“What they tend to be looking for are businesses that already have good management. These sorts of investors tend to be light touch – unlike private equity firms, which take a very active interest, and can also be costly.”

Of course, this approach carries its own costs, too. Naturally, investors in search of a solid bet need proof, which means going through the potentially expensive process of putting together an investor’s package. And even getting to know them in the first place can be a tall order, meaning long meetings pressing the flesh with numerous potential suitors is a distinct possibility, You may be relying on the contact books of partners and advisors in order to meet the right investor.

Alternative sources

With the economic uncertainty accompanying the Brexit vote, there’s been talk of mainstream lenders tightening their purse strings. In fact, Virgin Money announced shortly after the Brexit vote that it would be scaling back its lending to smaller and medium-sized businesses – the sort of size of business to which most printers could class themselves. However, printers, largely because of their steady nature should fare well. All in all, there’s reason for optimism.

“We believe the Virgin Money decision not to enter the asset finance sector was just unfortunate timing, clashing with the Brexit vote as they were about to launch,” says Compass Finance’s Jamie Nelson. “It’s difficult to predict what the other banks will do, with the government keen to ensure working capital doesn’t dry up. The Bank of England has eased capital leverage rule – the amount of capital banks’ have to hold in relation to their lending – enabling banks to more readily support industry if times get challenging. This combined with the more asset- and people-based approach of traditional asset finance lenders, should bode well for the printing sector.”

So far, the economic fallout of the Brexit vote hasn’t been the economic catastrophe many had predicted – sterling took a knock, of course, meaning that materials from overseas became more expensive – but Article 50 has yet to be triggered. And if it does plunge the UK back into recession, it could mean that alternative forms of finance, which flourished in the years after the last downturn could once again fill in the gaps left by the banks.

Printers are well placed to take advantage of two particular forms of ‘alternative’ finance. Asset-based lending, where capital is lent against anything from kit, stock or even premises; and invoice lending, where the funds are lent against the value of the company’s outstanding debts.

The latter, in particular, proved particularly useful in the years following the last recession, when late payments from customers became a depressing and disruptive norm. However, it’s not without issues, as Paul Haydock, founder of online invoice finance firm Duecourse, found in his previous capacity selling promotional materials. “Of course, companies don’t pay on time – we had salaries, rent and HMRC to pay, and had no cash. We went to the bank and they told us our credit limit was £1,000, but we could do invoice finance.”

“The product sounded fantastic but when it gets down to detail, you had sign up to a big contract, and big arrangement fees,” he continues. “One of the worst things is that they contact debtors letting them know you’re in an arrangement. And even if you’re not in distress, it does give that impression.”

This led Haydock to founding Duecourse, an invoice finance system which is conducted entirely online. It has what Haydock refers to as a ‘magic algorithm’ to assess a business’s risk, meaning that printers can potentially get their hands on sensible cash quickly and easily.

“The big thing is flexibility – it allows printers to get their hands on ‘their’ cash,” he says. “Maybe they’re doing a big job and they can’t do another one yet.”

Compass’ Nelson adds: “Invoice finance lends itself to the print market due to the clean traceable nature of the debt and the historically slow paying sector.” 

“Whilst being an excellent tool to accelerate cashflow and aid a growing business, it can in some circumstances create problems. If for example a business is very cyclical, when trading slows fewer invoices are raised and cash is reduced, at the same time as all the costs of the previous two to three months are due for payment. This is something to be aware of but if managed sensibly it can be a very effective facility”.

Aspire Print, a Manchester-based firm, was a company which has made use of invoice financing. Nathaniel Duckworth, the company’s founder, explains. “Over the past few years we have worked with lots of impressive customers and won some incredible new clients, which means our business has grown very quickly. Some of our bigger customers expect long payment terms, which means money is out of the business for a considerable period of time. However, Duecourse allows us to take on larger projects, whilst enabling us to manage our cash flow efficiently and that means we can access money that is locked up quickly and easily.”

The simple approach has helped Aspire Print spend less time on getting the finance sorted, and more time delivering for their customers. “We’ve used other invoice factoring firms in the past and found them very confusing, meaning they were more hassle than they were worth and caused a lot of admin work – time which could have been spent growing the business. With such companies, you also have to handover your entire ledger, meaning that you don’t have the flexibility of financing invoices on an ad-hoc basis,” says Duckworth.

Elsewhere, asset-based lending could also be an option well worth considering for printers, which by their very nature have an abundance of material to lend against. 

“Asset-based finance is perfect for printers. Print is capital-intensive, with lots machinery,” says John Nelson, managing director at finance firm IGF. 

Nelson believes that the approach taken by non-mainstream lenders means that printers can have a little bit more wriggle room when it comes to repayment programmes. “If you are trying to adjust to face the new world – you need cash, but that requires time, and it requires understanding,” he says. 

“Traditional bank finance is based around the expectation that the business will perform this way in the future – and hitting the bank targets can keep you awake at night. It’s less focused on future predictability – we look at whether a business is broadly viable and offer flexibility and support. Things change, companies face bumps in the road – we’re not fixated on the need to generate cash.”

Nelson believes the emergence of businesses such as IGF came about as a result of the last recesssion: “Because a vacuum emerged. SMEs are less predictable than bigger businesses. Banks like predictability and lower costs – and they tend to put businesses into boxes.”

However, things are complicated by the dizzying rate of change in equipment, which has the potential to affect what printers can get when it comes to borrowing against existing kit. Nucleus Finance’s Shah says: “New equipment comes out so quickly, which means the value of existing equipment goes down.” 

Niche touch

The most talked about forms of finance to come out of the last recession were crowdfunding and peer-to-peer based lending. But while these sort of funding endeavours might generate headlines, the merits of these forms of finances to the print trade are debateable at best. 

“Peer-to-peer lending probably enjoyed success in more unusual sectors, where there hasn’t been a plethora of lenders,” says IGF’s Nelson. “In more recent times they’ve edged into the periphery of more established sectors, although the higher returns often required by this form of lending, often precludes them from making deeper inroads.”

It’s a viewpoint Aust of Close Brothers backs up. “All funding has a place and most businesses will make use of several funding options,” he advises. “However, our experience would suggest that in many businesses the security and returns required to facilitate this kind of lending is not readily available.”

Then, of course, there are various pots of public money available. But accessing them isn’t always straightforward, and you have to make a pretty watertight case to get your hands on it. “There’s still some Regional Grant Fund (RGF) available for distribution until April next year,” says Compass’ Nelson. “They are for companies that otherwise wouldn’t easily achieve finance and the company must be producing new jobs, or safeguarding existing positions.”

Aspire Print, which was founded just short of two years ago, is also considering other options which are perhaps more suited to firms in early stages. 

“We are investing a lot into new technologies to help revolutionise the way print is procured online and take our business to the next level. To keep up the rate of growth, we might look to take up angel investment or venture capital in the future,” says Duckworth.

So, you’ve identified some tantalising finance deals and where to get them. But when it comes to getting the deal over the line, the devil is often in the detail, and finance can hinge on whether you’ve got the preparation right and how you present your company.

“In respect of finance applications, they’ll need a good rationale as to why they’re acquiring the machine and how they’ll meet the demand on cash, for instance,” says Compass’ Nelson. “Demonstrate you’ve researched the equipment market prior to deciding on a machine, the greater efficiencies, meeting greater customer demand, saving on outwork and so forth. And up-to-date financial information is essential.” 

For Nelson of IGF, understanding where the business has been is critical. “We look for a committed management team and accurate, up-to-date information. We understand a business’s story – how did you get here? Where do you need to go? You can work out what they need.”

For Aust at Close Brothers, responsibility is at the core of any decision, but they are made on a case-by-case basis. “The main criteria that a funder will look for is the ability to repay, better known as ‘affordability’. As a responsible lender, it is our duty to ensure that an unaffordable debt is not created. 

“We realise that future business and potential growth is as important as historic accounts. We individually structure our deals, taking this potential into account along with the core asset values of the machinery involved.”