Support for UK manufacturing is something to which British politicians usually pay lip service and not much more. However, the collapse of the financial sector has brought into sharp relief the benefits of having a world-class manufacturing industry.

Countries such as Germany, with its much-hailed Mittelstand – the export-oriented SMEs that form the backbone of Europe’s largest economy – have bounced back quickly and confidently from the global recession. Meanwhile the UK, which sacrificed its manufacturing heritage on the altar of globalisation and pinned its hopes on the financial services sector, has remained bogged down in an economic slump, despite the massive amounts of extra cash being pumped into the economy by the Bank of England.

In recent months, though, government rhetoric about the need for a strong SME manufacturing sector has started to inform policy that might just support that goal. From employment law to cutting red tape to public sector tenders, genuine attempts have been made to release the shackles from small business owners. These have not been without setbacks, particularly on the tenders front, where the government pledged to award more contracts to SMEs and promptly signed a ￡250m contract with Williams Lea for all government print. Notable blunders aside, the fact that we are seeing actual policy, and not just rhetoric, represents a massive improvement. With its latest support measure – the ￡95m investment grant programme borne out of the ￡1.4bn Regional Growth Fund – the government is closer to its target.

Bridging the gap

The scheme is aimed at SMEs that want to invest in new equipment but can’t access the finances. An SME with a ￡10,000 deposit, which wants to buy a ￡100,000 piece of kit, could use a ￡20,000 grant to bridge the gap between the ￡90,000 it needs to borrow and the ￡70,000 the bank will lend. Grants are only awarded where the bank would decline a loan application using its normal credit criteria (except on grounds of insufficient security to support the new debt; then an application should be made to the existing EFG scheme).

It is not yet clear what criteria the banks will use to decide which rejected loans they are going to put forward for grants. It is similarly unclear how the banks will decide on the value of the grant relative to the loan, with the latter able to be anywhere from two to five times the former. In the case of the ￡100,000-spend with a ￡90,000 borrowing requirement, this means the grant could be anywhere from ￡15,000 to ￡30,000 – clearly a noticeable difference. Whatever the value of the grant, this portion of the finance will never need to be repaid and interest cannot be charged on it.

The fact that printers or finance brokers cannot apply directly for a grant could limit the uptake; in effect the printer will be left hoping that whoever processes their loan application at the bank takes a creative view – more akin to a broker – in terms of deciding whether a loan could be structured to meet the banks requirements with the benefit of a grant. Unsurprisingly, this is one of the main criticisms from finance experts, such as Mark Nelson of Compass Business Finance, who warns that the route to market – at just two banks, RBS and HSBC – is too narrow and will naturally restrict the beneficial impact of the scheme.

The other major caveats to the scheme are that the grants can only be used to fund new investment, not to refinance existing debt, and that they can only be used to support investment in new plant and machinery that will create new employment or safeguard existing employment. This is somewhat counterintuitive in terms of industries such as print, where one of the main rationales for investing in new equipment is that it will bring greater efficiency, enabling a reduction in staff costs.

However, perhaps the biggest problem – as seen by the massive drop-off in orders in the latest quarterly results from the major press manufacturers – is that the crisis in the eurozone, allied to falling economic growth and consumer demand, is putting thoughts of investment on the back-burner as the economic climate is too uncertain for most SMEs to take on new debt, even if the government is offering them free money as an incentive.

This doesn’t mean there is no support for the idea or any belief that it would not help printers to access funds needed to invest. "In some cases – if the company’s credit is okay and the serviceability of the debt is proven, but they don’t have the capital for the deposit – this scheme could work well," says Compass Business Finance’s Mark Nelson.

However, timing is everything in business and despite the fact the government seems to be moving in the right direction in terms of supporting investment in manufacturing, for most printers it’s still a waiting game.