By Roger Baird on Monday 28 January 2019
Digital lenders are using Brexit as a chance to advance cash to manufacturers who are stockpiling components.
Fintech firms are stepping up their financing to UK manufacturers as they stockpile raw materials ahead of a potential no-deal Brexit.
Loans to manufacturers jumped by 8.4 per cent in the year to last December, hitting £17.9bn, compared to a 0.3 per cent contraction in overall UK business borrowing over the same period, according to figures from banking body UK Finance.
Firms as large as aircraft maker Airbus to smaller operations such as Brompton Bicycle have said they are building inventories of crucial parts ahead of Britain’s scheduled 29 March exit from the European Union.
Manufacturers are looking for additional working capital loans to cover the cost of stockpiling.
UK Finance managing director, commercial finance, Stephen Pegge said: “Lending to manufacturing has seen strong growth during 2018, compared with a subdued appetite for borrowing by most other sectors. This may in part be driven by manufacturing businesses stockbuilding in the face of ongoing economic uncertainty.”
This was echoed by Chris Roberts, head of origination at small business finance platform CODE Investing, who said that fintech lender’s are treating the situation as an opportunity.
Roberts said: “Britain’s manufacturers are borrowing more, not less – driven largely by a strategic desire to stockpile. What is particularly striking is that while finance continues to flow to manufacturers who need it, the source is shifting; from traditional banks to the growing number of alternative finance providers, whose appetite to lend remains strong.
He added: “Many smaller businesses are aware that the banks are tightening their criteria and are opting to look elsewhere. At the same time, many alternative finance providers see the current macro-economic uncertainty as an opportunity to increase their market share.”
Many businesses British manufacturers rely on ‘just-in-time’ deliveries that require parts to arrive at the factory as soon as they are needed for production.
However, if Britian leaves the EU without a transition arrangement, firms are concerned that these parts could be delayed as customs and regulatory checks are reintroduced at UK docks.
Other business bodies also say that pressure has been mounting on manufacturing firms in recent months.
The closely-watched Markit/CIPS UK manufacturing purchasing managers' index (PMI) jumped to a six-month high of 54.2 last month, higher than the 53.6 recorded in November. Economists had expected a reading of 52.5. A figure above 50 indicates growth.
Rob Dobson, director at IHS Markit, which compiles the survey, blamed “boosts to inventory holdings and inflows of new business as companies stepped up their preparations for a potentially disruptive Brexit.”
This was backed by Francesco Arcangeli, an economist at manufacturers’ organisation EEF, who added that “the rush to stockpile goods ahead of Brexit and the potential disruption from a no-deal scenario is now in full swing”.
Despite imported goods becoming more expensive because of a weaker pound since the Brexit referendum two years ago, manufacturers are chasing cash in order to hoard components at their warehouses to be sure they can complete orders.