Countries such as Germany, with its much-hailed Mittelstand – the export-oriented SMEs that form the backbone of Europe’s largest economy – have bounced back quickly and confidently from the global recession. Meanwhile the UK, which sacrificed its manufacturing heritage on the altar of globalisation and pinned its hopes on the financial services sector, has remained bogged down in an economic slump, despite the massive amounts of extra cash being pumped into the economy by the Bank of England.

In recent months, though, government rhetoric about the need for a strong SME manufacturing sector has started to inform policy that might just support that goal. From employment law to cutting red tape to public sector tenders, genuine attempts have been made to release the shackles from small business owners. These have not been without setbacks, particularly on the tenders front, where the government pledged to award more contracts to SMEs and promptly signed a £250m contract with Williams Lea for all government print. Notable blunders aside, the fact that we are seeing actual policy, and not just rhetoric, represents a massive improvement. With its latest support measure – the £95m investment grant programme borne out of the £1.4bn Regional Growth Fund – the government is closer to its target.

Bridging the gap
The scheme is aimed at SMEs that want to invest in new equipment but can’t access the finances. An SME with a £10,000 deposit, which wants to buy a £100,000 piece of kit, could use a £20,000 grant to bridge the gap between the £90,000 it needs to borrow and the £70,000 the bank will lend. Grants are only awarded where the bank would decline a loan application using its normal credit criteria (except on grounds of insufficient security to support the new debt; then an application should be made to the existing EFG scheme).

It is not yet clear what criteria the banks will use to decide which rejected loans they are going to put forward for grants. It is similarly unclear how the banks will decide on the value of the grant relative to the loan, with the latter able to be anywhere from two to five times the former. In the case of the £100,000-spend with a £90,000 borrowing requirement, this means the grant could be anywhere from £15,000 to £30,000 – clearly a noticeable difference. Whatever the value of the grant, this portion of the finance will never need to be repaid and interest cannot be charged on it.

The fact that printers or finance brokers cannot apply directly for a grant could limit the uptake; in effect the printer will be left hoping that whoever processes their loan application at the bank takes a creative view – more akin to a broker – in terms of deciding whether a loan could be structured to meet the banks requirements with the benefit of a grant. Unsurprisingly, this is one of the main criticisms from finance experts, such as Mark Nelson of Compass Business Finance, who warns that the route to market – at just two banks, RBS and HSBC – is too narrow and will naturally restrict the beneficial impact of the scheme.

The other major caveats to the scheme are that the grants can only be used to fund new investment, not to refinance existing debt, and that they can only be used to support investment in new plant and machinery that will create new employment or safeguard existing employment. This is somewhat counterintuitive in terms of industries such as print, where one of the main rationales for investing in new equipment is that it will bring greater efficiency, enabling a reduction in staff costs.

However, perhaps the biggest problem – as seen by the massive drop-off in orders in the latest quarterly results from the major press manufacturers – is that the crisis in the eurozone, allied to falling economic growth and consumer demand, is putting thoughts of investment on the back-burner as the economic climate is too uncertain for most SMEs to take on new debt, even if the government is offering them free money as an incentive.

This doesn’t mean there is no support for the idea or any belief that it would not help printers to access funds needed to invest. "In some cases – if the company’s credit is okay and the serviceability of the debt is proven, but they don’t have the capital for the deposit – this scheme could work well," says Compass Business Finance’s Mark Nelson.

However, timing is everything in business and despite the fact the government seems to be moving in the right direction in terms of supporting investment in manufacturing, for most printers it’s still a waiting game.

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READER REACTION

Kevin Stewart
Sales director, MBA Group
"Support of innovation or development in our industry is critical to maintain the current impetus for more effective and efficient print production. However, in print there has historically been an attitude of ‘spend now and turnover will naturally follow’ – much to the detriment of many printing organisations. If, instead, investment is made for innovation and efficiency, this kick-start from the government could be the initiative many SMEs in our industry need. Jobs will be created and also retained in a difficult market place."

Mark Nelson
Director, Compass Business Finance
"I think this is a good concept, but the route to market – HSBC and RBS – is very narrow. How will businesses who use other banks, finance companies or brokers gain access to the fund? Banks are balance sheet lenders. Will an increased deposit encourage them to lend? They won’t start underwriting deals where they are wholly reliable on the asset value, because they don’t want an increase in repossessions and machines to dispose of. There are other funders in the market who are better-placed to write this business and deal with the consequences."

Howard Matthews
Chief executive, Loricas Solutions
"Any top-up grant is good news for businesses prepared to invest. But who will approve these grants and how long will it take to meet the criteria? The Small Firms Loan Guarantee is a typical example of banks being reluctant to get involved. Unfortunately, when the government bailed out these banks over three years ago, they fell short of capping interest rates and some SMEs in need of help couldn’t afford to take loans at 19% to 21% interest. Cut the red tape and get those funds into the economy, quickly and with low interest rates."