Research from Alliance Finance Bank, set up to help small and medium businesses, shows that half (46%) of US mid-sized manufacturers have faced challenges raising finance.
The research of US mid-sized manufacturers turning over $10m to $300m reveals that nearly one in three say accessing finance is more difficult now than five years ago.
Iain Hunter, CEO of Alliance Finance Bank, said: “Our research shows that US mid-sized manufacturers have faced considerable challenges in raising finance. What’s more, our research highlights that the situation is getting worse not better.
“But without greater access to finance, US mid-sized manufacturers will not be able to trade, grow and create jobs. Helping mid-sized businesses unlock growth along the manufacturing supply chain would help tackle the US economy’s productivity challenges.
“Mid-sized firms generate more growth and create more jobs than their larger or smaller peers, but they are often neglected by banks and financial services providers. Alliance Finance Bank was set up to address these issues and help these firms to unlock growth, filling a vital gap in the market.”
The impact of a lack of finance
The research shows difficulties raising finance to support their growth has stopped US mid-sized manufactures from winning new contracts and stifled new job creation.
Each firm said that the difficulties raising finance meant they had missed out on an average of $20 million in revenues and an average of 11 new contracts. These would have enabled each firm to create 10 new jobs.
These figures suggest that the 23,000 mid-sized manufacturing businesses in the US have collectively missed out on 163 thousand contracts. These would have created 175 thousand jobs and $183 billion in potential revenues.
The preference for debt over equity
The Alliance Finance Bank research also shows the preference for debt financing over equity funding among US mid-sized manufacturers.
The research highlights that nearly two thirds (64%) of mid-sized manufacturers asked would prefer not to consider giving up equity to raise finance.
But highlighting the difficultly many firms now face, a third (34%) of those who would prefer not to give up equity have had to consider it.
When breaking down the research by turnover and sector, 78% of firms with revenues of between $11 million and $25 million would prefer not to give up equity to raise finance. This is the highest of any business.
When looking at those firms that would prefer not to give up equity, some two thirds (62%) of automotive businesses have had to consider it, the highest of any sector.
Iain Hunter added: “Alliance Finance Bank helps businesses tap into the value in their fixed and working capital assets so they can unlock growth without giving up equity. We do this by getting to know the customers we work with and tailoring the solution to meet our customer’s specific need.”
According to BDO[i], the business advisory firm, over the past five years businesses this size have delivered revenue growth of 32% and profit growth of 45%. This compares with FTSE350 companies whose revenues have shrunk by 0.6% and whose profits have fallen by 40% in the same period. Over that time, small-business revenues fell by 2% though profits rose by 6%.
BDO also shows that growth in these firms has created more jobs than large and small businesses combined. In the last year mid-market firms created 534,900 new jobs compared with 191,000 by small businesses and a loss of 157,000 by the FTSE350.
BDO, “What now? a new economy”, November 2018 (http://neweconomy.bdo.co.uk/)
