Finance from the in-crowd

New sources of finance are available for innovative companies who want to expand and create jobs, writes Charles Orton-Jones

Innovation in manufacturing is a given. What is less obvious is the way funding for new and established manufacturers is becoming more sophisticated. The days when British manufacturers relied on bank loans and corporate private equity are long gone.

When Geraldine Grandidier wanted to expand Tidy Books, a range of colourful bookshelves for children, she took the crowdfunding route. Her chosen platform was Crowdcube. Her goal was £75,000. She ended up raising £105,600 for 11.35 per cent of the equity – a handsome 40 per cent overshoot of her original goal. One private investor put in £15,000.

What is doubly remarkable about her success is that investors were prepared to back someone without a traditional blue-chip manufacturing background. Ms Grandidier is a 45-year-old mother of two who started Tidy Books in 2004 with £500. She’d been a violin-maker and made the first prototypes in her violin workshop.

She previously used loans from Barclays and the peer-to-peer lender Funding Circle, but says she prefers equity to loans “because it is more democratic and there is a sense of mutual trust, fair valuation and partnership right from the start”.

Creative approaches such as crowdfunding are growing because bank lending remains tight. The Bank of England estimates new syndicated lending to UK businesses totalled £74 billion in 2013, down from £150 billion in 2007, though up from the trough of £34.3 billion in 2009. Lending has been boosted by the government’s Funding for Lending Scheme, which allows banks to borrow at rock-bottom rates if they approve loans, although it has been criticised for stimulating mostly mortgage lending.

The days when British manufacturers relied on bank loans and corporate private equity are long gone

Manufacturers ought to find life easier because of the range of government measures designed to facilitate lending. Enterprise Capital Funds has received £200 million, which is destined for co-investment with private-sector cash. These include Longwall Capital’s early-stage engineering and technology fund, and Panoramic’s generalist equity-growth fund.

Also, a billion pounds has been directed to Regional Growth Funds. This will fund grants to small and medium-sized enterprises of all types in England looking to grow and create jobs.

Established businesses are finding asset-based finance attractive. Assenta Steel secured asset-based lending facilities of £19 million, comprising £14 million of accounts receivables and £5 million of inventory from GE Capital to fund an ambitious export strategy. The funding helped the company grow 40 per cent in a single year to a £90-million turnover.

Last month, the Finance & Leasing Association reported that the asset finance market reached its highest level of new business for three years at the end of 2013. Specifically, for those asset financiers providing plant and machinery finance, totalling more than £4.4 billion in 2013, the volumes for December 2013 were up by 25 per cent compared to December 2012.

“These numbers clearly demonstrate that the use of asset finance by manufacturing businesses is on the up, which I believe can be attributed to the innovative finance products, experienced people and an increased appetite to lend within the asset finance market,” says Neil Lloyd, head of sales development, Lombard Business & Commercial.

For some manufacturers with a cutting-edge idea, the best route may be a Technology Strategy Board (TSB) grant. Glenn Smith is the founder of MapleBird, which is designing a palm-sized aerial drone for civilian and emergency services use. “It’s so small it works indoors,” says Mr Smith. He won £135,000 in alliance with the University of Manchester, receiving £70,000.

One key factor in funding for manufacturing is it’s never been so cheap or quick to develop products. Take MapleBird: “We thought we’d need to use injection moulding for one process,” says Mr Smith. “That costs tens of thousands. Instead we used 3D printing, which cost £250 and we got the stuff back in three days. The bars to entry are dropping and dropping, which is why manufacturing is such an exciting space right now.”