What is Manufacturing Finance?

March 5, 2024
Jamie Davies

British-based manufacturers are the envy of the world. Research shows that many customers worldwide are willing to pay more for products made in the UK. This premium presents an opportunity for manufacturers of all sizes.

Despite this advantage, UK manufacturers also face the same challenge as all their competitors around the globe - theirs is a cash-intensive business.

Setting up requires significant investment - paying for plant and equipment, premises and people. Then there’s the cost of design, raw materials and establishing yourself in the market. All this spend comes, typically, before you earn a penny in sales revenue.

If that wasn’t enough, you also need considerable working capital- cash in the bank- to keep the production line running.

One way to raise capital is by exchanging it for equity, such as working with angel investors or venture capitalists. But not every business owner wants to give up a stake in their company.

Fortunately, there are a number of financial products available that can supply working capital without diluting ownership.

How to raise manufacturing finance

You have a number of different opportunities for raising working capital for your business.

These include:

Asset finance

Unlocking the cash tied up in assets offers a huge opportunity to manufacturers. The average mid-sized UK manufacturer has assets valued at a quarter of their annual turnover. That is, firms with an annual turnover of £10m have an average of £2.5m in assets (based on research in 2019).

These assets - buildings, equipment, stock and raw materials - can all be a source of working capital. Asset finance is a form of borrowing that’s linked directly to asset values.

Unsecured loans

You can borrow between £10k and £350k through an unsecured loan, usually repaid monthly over a number of years. It’s also possible to take out a short-term loan, paid back in just a few months.

Because no collateral is being given for the loan, it can be arranged quickly, usually in just a few days. A personal guarantee may be required from a director.

Secured loans

If you need to borrow a larger sum, a secured loan could be the way forward. This does mean putting up an asset as security for the loan, and it takes longer to arrange because of the additional checks and paperwork involved.

A secured loan may be repaid over a longer term.

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Invoice finance

Invoice finance, also known as factoring or invoice discounting, is a popular method of raising working capital to improve cashflow. It works by converting outstanding sales invoices into cash.

Most manufacturers sell on credit terms, sometimes giving their customers as much as 120 days to pay. This certainty that they will get paid in the future is an asset, and as such it is convertible into cash. It’s estimated that at any point in time, up to a quarter of a manufacturer’s turnover is tied up in unpaid invoices.

Invoice finance is the mechanism for converting unpaid bills into immediate cash. There are various forms of invoice finance available, including selective invoice finance and confidential invoice finance.

R&D tax credits

British manufacturing is known for its innovation. What many manufacturers themselves don’t know is that they can be rewarded for that innovation.  

The reward is in the form of tax credits given for research and development. Every year thousands of UK manufacturers, including many smaller companies, make a claim. For many the value runs into tens of thousands of pounds.

This is cash that you don’t have to pay out as tax, but get to keep as working capital.

Many firms make the mistake of assuming their R&D work doesn’t qualify for this scheme. We recommend that you speak with a tax credit expert - you may be very pleasantly surprised!

Release manufacturing finance for your business

We help manufacturing businesses that want to grow raise the funds they need to succeed in their goals.

Our team of finance specialists works with around 250 business finance providers, many of which have a funding solution suitable for manufacturers. Our role, as finance brokers, is to match their products with your situation.

Whether it’s tax credits, invoice or asset finance, or a loan that you’re looking for, we have the knowledge and experience to support your application.

Don’t allow a lack of working capital to hold your manufacturing business back from growth. It costs nothing to speak with our team to start exploring your options. Give us a call today.

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Jamie Davies
Managing Director

As a founder of multiple businesses, Jamie believes that mindset, discipline and ambition are key drivers for success, both for his businesses and for his clients. 

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Disclaimer: Spark Finance Ltd (Registered office - 18 John Stow House, London, England, EC3A 7JB, Registered Number 10128297) helps UK firms access business finance. Spark is a credit broker, not a lender. Any quotes provided are for information purposes only and subject to status and separate lender terms and conditions. Applicants must be aged 18 and over.  Guarantees and Indemnities may be required.  Spark Finance may receive commission from lenders  which may vary depending on the lender, product, or other permissible factors. The nature of any commission model will be confirmed to you before you proceed.

Spark Finance Ltd is authorised and regulated by the Financial Conduct Authority in the UK (FRN 958123).