A question of lending

Barclays’ commercial, director James Cliffe, reflects on lending trends in the current climate and shares the advice he’s giving to clients.

'Are banks lending?' That's the question my team are asked time and time again by business groups, media and even clients. While I can’t speak for other banks, the answer at Barclays is definitely 'yes'. Between January and September 2009 we advanced £11.8bn in new term loans to businesses in the UK, from SMEs to blue chip clients - and we’re constantly seeking more opportunities to lend to viable business propositions. In fact, contrary to popular belief, our approval rates for credit applications have actually remained consistent with their high pre-recession levels.

It is true, however, that there has been an overall reduction in the amount of finance available for UK businesses particularly as foreign banks and niche lenders have retreated from the UK market. In the past the finance facilities offered by these lenders allowed easier access to funds. Some businesses who might have found funding by these alternative sources are finding that traditional banks are more careful to assess the viability of a lending proposition.

Changing levels of debt

Demand for debt has fallen in some sub-sectors for various reasons. The destocking process, of early 2009, was a cash positive trend - with manufacturers running down stock and collecting on debtors. It resulted in improved cash positions for a number of businesses. Also, ‘In Case of Need’ facilities are often more expensive than before. Companies are either cancelling or reducing these to more appropriate levels, whilst still retaining headroom to move if an opportunity presents itself in the upturn.

Some companies are expecting buying opportunities to appear over the next 12/18 months and are ensuring they have access to the necessary finance to enable them to action these.

Knowing your growth limits

But what should manufacturers be thinking about now that the recovery appears to be on the horizon? Experience shows us that a great number of corporate failures occur after the recession has formally ended and the economy is growing again. The reason is companies lack the cash to fund growth and may end up over-trading or overreaching. Manufacturers need to ensure they have the cash necessary to fund them through this next phase.

When to invest

History shows us the best time to invest, if you can afford to, is during the recession and the immediate period afterwards. This is when machines and tooling can be obtained quicker and at better prices, so look out for attractive opportunities now. With many companies ‘right-sizing’ their businesses in the face of reduced demand, there’s an opportunity to retain a more streamlined workforce, but also pick up talent where appropriate.

As the global trade winds are now blowing steadily eastwards and sterling remains relatively weak. For those ambitious enough, now would be a great time to consider expanding markets into Europe or the Far East.

Lending alone won’t ensure stability; fundamentally it is demand amongst businesses and consumers, boosted by returning confidence, which will be the key driver. For businesses ready to take advantage of a recovery opportunity, make sure you have good cash flow and headroom in your lending facilities.

James Cliffe
Barclays Corporate
Tel: 0161 912 6695
Mobile: 07714 226359
Email:james.cliffe@barclays.com