Making better: Supporting the UK manufacturing sector

It would be wholly wrong, however, to characterise all of UK manufacturing as being in a state of stagnation or even decline. In any market, where there are those who lose, there are others who win, and the winners are especially those who have pivoted their businesses to focus on many of the ‘newer’ industries involving electrification and similar green technologies. Indeed, many of those businesses are in rude health, and will be key to returning the UK to more positive growth. 

Manufacturers that have built resilience into their business models and who can flex and adapt with the challenge of uncertainty still create opportunities. No SME ever says they want to stand still; every manufacturer is looking to grow, and for that they must have the confidence to invest.

This is where the banks come in, not only to provide the money, but also the knowledge and the connections to help build a sustainable business. 

There will be those manufacturers, for example, who have yet to really think about investing in more energy efficient processes or buildings, and the positive impact this can have on their bottom line. There are others who have never borrowed in their lives, and perhaps even fear debt, and yet could benefit significantly from borrowing to invest in new energy efficient technology that would not only improve their production capacity, but also reduce costs to such an extent that it delivers a timely and tangible return on investment. Debt is not for everyone, but for profitable businesses, with a healthy balance sheet, and a very clear plan of what that borrowing is going to fund and the return they can expect it can be a sound business decision.

Shifting models

As well as investing in plant and machinery, manufacturers may also be looking to shift their model of leasing their premises to acquiring their own. Again, it may not be for everyone, but taking on a commercial mortgage to acquire a new, more modern premises that has been built specifically with the purpose of being more energy efficient can similarly be transformative.

Getting started can be a headache. Manufacturers may recognise a direction of travel towards a greener, more energy efficient future, but are not sure how to get there. Again, this is where banks can step in, not as ESG consultants, but rather by embracing their wider relationships and working collectively and collaboratively with their customers and partners to deliver more holistic solutions.

It is not enough for banks simply to be order takers. The more successful banks are those with Relationship Managers in the field who take the time to better understand their customers, the people behind the business, their motivations and ideas, and their strategies for future growth. Then it is about connecting them to a wider ecosystem that can help them improve supply chain efficiencies, find new business opportunities, and deliver the funding they need to grow.

Throughout COVID, many manufacturers stockpiled large amounts of cash - cash that is now sitting in a bank account, earning nothing and doing less. Whereas banks may have increased their interest rates on their savings products, current accounts and instant access accounts have remained flat. 

This has presented a huge opportunity for the challenger banks, and Allica Bank in particular, which recently launched its own business current account paying 3% interest without any penalties for early withdrawal, or limits on what can/cannot be taken out. For a manufacturer with £1m in the bank, that’s £15,000 in interest earned while the money sits there, perhaps ring-fenced to pay a future HMRC bill or as a deposit for some new machinery.

Even as recently as five years ago, we would not have been having conversations with manufacturers about their savings or excess cash balances. But times have changed, and the smarter banks have changed with them. Standing still is in fact going backwards. Supporting established SMEs with a comprehensive portfolio of asset finance, commercial mortgage, and current account products complemented by a network of relationship managers who truly get under the skin of the businesses they support will be key in moving the needle of a future PMI index in the right direction.

www.allica.bank