25
Sat, Jun

IR Talks to... David Bunker, director, Compass Business Finance

Earlier this year British Business Investments announced an additional £15m commitment to Compass Business Finance, taking its total commitment to £30m - the intention being to increase the flow of funding for asset finance products into UK-based smaller businesses operating in the print, packaging and manufacturing sectors. So who is asking for the money, are they getting it, and is this conversation more, or less, likely to make you apply too?

David, can I first ask you to give us some idea of how much Compass Business Finance lends to the print industry on an annual basis? To what extent did the Covid pandemic impact that? 

Compass is the largest independent finance company specialising in the print sector and we currently lend around £100m-plus per year to print companies - either from our own funds or by utilising funding from other finance houses or banks that we have funding agreements with.

At the beginning of lockdown, we were one of a small number of lenders approved to disperse British Business Bank funding through the Enterprise Finance Guarantee (EFG) Scheme, which morphed into the Coronavirus Business Interruption Loan Scheme (CBILS). It meant we were immediately able to help support businesses within our sectors. As you would expect, borrowing within the industry increased considerably, with the initial requirement being for immediate cashflow support. Then businesses started re-evaluating their cost base. The sentiment was that business levels would not return to pre-pandemic levels, so it was imperative to remove direct costs, such as headcount, despite furlough support being available. Many then saw the need to review their machinery efficiency and started to make strategic investments in their production processes.

Are you seeing/predicting much change in 2022, and why do you think that’s the case? 

At the beginning of the year, businesses were being extremely cautious in their decision making - many were choosing to delay investment plans, which really was unsurprising in the face of all of the uncertainties in the market and economy, such as, energy price hikes, paper and substrate costs and the war in Ukraine. But we’re now seeing an increase in the requirement for funding across the sector.

Businesses have started to re-evaluate their needs and are actively seeking the funding to improve efficiency and create greater capacity. This has been fuelled in part by the return of much of the pre-pandemic volumes. Interestingly, many SMEs are choosing not to take on all the work being offered but are being selective in terms of margin and risk of concentration levels.

What has been noticeable is the levels to which some businesses are passing on the cost of energy and raw materials as a surcharge. Others may feel too vulnerable to do this, but from my view the message is that without passing on the costs the margins will be too low or negative to survive.

My readers are owners/directors of large-format print companies in the large-format digital inkjet space. Many of them fall into that SME bracket which the additional British Business Investments funding is supposed to help. Are you noticing much increased activity from this sector specifically? 

We’re seeing an increased amount of investment in this sector, much of which is being driven by the return of the high street and exhibitions etc. We’re also seeing customers demanding more sustainable products, and in turn we’re starting to see companies looking at more sustainable production processes. There’s also an ongoing drive towards smarter and more efficient processes. It’s hard to recruit the right people, so businesses are looking to technology and automation to help bridge this gap.

Despite a growing appetite for investment, there are still supply chain issues and longer than normal wait times on receiving new equipment.

What is this sector most wanting the funding for? 

It’s a real mix as you can imagine. All businesses are being faced with additional challenges and having to look at the way they manage their cashflow. We’re having conversations with most of our customers around how they restructure their outgoings, looking at options for refinancing existing agreements or restructuring elements of their business.

But, as we’ve discussed, businesses in this sector are investing, and looking to the future, they have a vision for what they need to achieve and are actively seeking the funding required to make their next steps.

Do you still have funds in the pot and, if so, what do print businesses need to do to get part of it? 

Compass has been well funded for many years and this has stood us in good stead to continue to service our customers through Covid and for the post pandemic needs. The funding from BBI will support our lending in conjunction with funding from other traditional sources.

Essentially, we will continue to lend in the same way as normal, with the funding from the BBI and schemes provided by the BBB enabling us to lend to a wider range of businesses than we normally would. For example, the impact of the pandemic has left many businesses with a much weaker set of accounts for the past two years than they would have had in normal times, guarantees provided by the BBB mean that we can continue to offer funding in situations where the answer may otherwise have had to be ‘no’.

The Recovery Loan Scheme (RLS) is currently the key enabler, although it is due to finish at the end of June, and we’re yet to have any knowledge of what it might be replaced by.

Basically, we’re very well-funded and have a healthy availability to meet the needs of the market.

Are there any noticeable ‘gaps’ in funding availability/meeting demand, and how is that likely to be addressed, or not, in the foreseeable future? 

One noticeable change in the market is the increasing absence of commercial loans that don’t require personal guarantees. During the pandemic CBILS enabled funders to lend without this type of security, however, without that scheme in operation, pre-pandemic requirements are being re-established.

I would say another ‘gap’ is support for sustainability investments and initiatives, although we expect to see this improve with the rollout of the #GreentoGrow campaign from the BBB and expect there may also be funding support initiatives from the government to follow.

High street banks are still cautious, and this is reflected in the number of applications being made to non-bank lenders such as ourselves.

What’s your message to market about accessing finance in the current climate? 

For the right business case there are some very good funding options available.

There is a great deal of interest to support investment in technology, for increased efficiency and working towards a ‘net zero’ economy.

One has to also remember that businesses still need support for working capital as they navigate the post pandemic world, noting too the huge pressures on energy from the Ukraine issue. As we’ve discussed, unsecured loans are in strong decline but there are several alternative ways of raising capital from your business to consider. We’re still very busy with this area of funding so it’s important to remember that for many businesses is getting the balance right.

And last of all, a reminder that the Recovery Loan Scheme (RLS) comes to a close on 30 June this year, so if you do have any investment requirements, please raise them prior to this date to ensure you have the best chance of getting what you need at the lowest possible rate.

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