Act before the funding purse closes for good
Tuesday, April 7, 2015
Few UK industry sectors emerged from the recession as bloodied and bruised as UK Print PLC. Prior to the downturn the industry was in a tailspin thanks to the rise of online communication channels, dwindling print runs and cutthroat pricing caused by the growing influence of print management and business process outsourcing behemoths.
As a result, by the mid to late 2000s printers were already operating on wafer-thin margins, with hundreds of companies teetering on the brink of the abyss. The meltdown of the global financial markets proved to be the final nail in the coffin for many such businesses.
The situation was made even more challenging by the steady withdrawal of the financial institutions that had historically loaned money to UK printers. This meant that even those printers that had a solid business plan, a growing client base and were on a steady growth trajectory struggled to get funding for new kit. Those companies that subsequently emerged from the economic downturn relatively unscathed faced a difficult few years ahead as the technology that they were using was in dire need of an upgrade to make their production processes more efficient.
But then a glimmer of hope emerged from an unlikely source. In 2011, the government introduced a new programme christened the Regional Growth Fund (RGF). The aim of the fund was to allow businesses – including printers – based in England (excluding the Greater London area) to invest in new equipment by providing that all important deposit. Since its inception millions of pounds have been spent by UK printers on equipment that they might not otherwise have had. But like all good things RGF funding is about to come to an end. The fifth and final round of funding comes online this month and when that runs out there will be no more grant assistance available.
So how does RGF work and what do those printers who want to get their hands on some of the cash need to know about the application process?
According to the Department for Business, Innovation and Skills, RGF programmes have allocated £1.7bn worth of funds across all industries and to date have supported more than 9,400 small and medium-sized businesses. These programmes have also created more than 500,000 jobs and more than £13bn of private sector investment.
Essentially what RGF did at a time when the lending market was still incredibly fragile, was significantly reduce the risk exposure for asset finance firms by providing up to a 20% cash deposit, which was more than adequate security for most lenders. As a result, it’s little wonder that Basil Bannayi, managing director of the print division at Close Brothers Asset Finance, describes the scheme as “fantastic”.
“It genuinely seeks to preserve or create employment which is vital for a transitional industry like ours that had experienced a large reduction in size over the past decade due to the rise of ‘new media’,” says Bannayi.
Close has doled out millions of pounds of RGF funds to print firms over the past few years and has been awarded £40m of round five funding to fuel SME investment.
“At the maximum 20% a grant would support investment in £200m of equipment and the eligibility criteria requires that 4,000 jobs will either be saved or created,” says Bannayi.
He explains that the size of the grant available to each company is based on strict eligibility criteria outlined by the government, including the scale of the business, the level of investment and the number of sustainable full-time posts being created or retained as a result of the investment (see eligibility boxout on the next page). “One job must be created or retained for every £10,000 of grant received, up to a maximum of £500,000,” says Bannayi.
Around a year after the loan commences successful applicants have to get formal confirmation from their auditors that the commitments they made in their application to either create or safeguard jobs have been fulfilled. Although the application process is rigorous, it’s relatively straight forward, according to Mark Nelson, director at Compass Business Finance, which has also distributed RGF funds to printers over the past couple
“It is not really any more onerous than a normal credit application,” says Nelson. “There are a few additional requirements, but it is one of the more straightforward schemes in the market. It is worth anyone investing having a conversation with us to determine whether there is the potential for an application to be made.”
He adds that Compass has a “comprehensive knowledge” of how the scheme works and that the company’s staff is on hand to guide people through the application process.
“We can offer a quick response on the potential for an application and then support the customer through the whole
process,” says Nelson. “We can help a business in the UK market and we do not charge for this service. All RGF approvals are supported by the accompanying finance agreement.”
Close offers a similar level of service, according to Bannayi, who explains “our specialist staff handle the application process from end to end. That’s the beauty of it – it’s so simple. Prospective customers explain their rationale ‘face-to-face’, sign an application form and this then forms part of a normal underwriting process and there’s nothing more to it. Once the information required has been collected a decision can be made and a successful application can be paid out in as little as two days.”
One of the numerous printing companies to already benefit from the RGF programme is POS, exhibition and display graphics specialist Best Digital. Geoff Rawlings, joint managing director at Welwyn Garden City-based Best, wanted to replace the company’s ageing Screen Truepress Jet W1632UV with the Screen Truepress Jet W3200UV HS flatbed printer to increase throughput by as much as 50%.
“We were really interested in buying it, but we didn’t have the deposit,” says Rawlings. “Screen mentioned there was RGF finance around and they put us in touch with some finance brokers who said ‘no problem, we can get it for you,’ but they came back to us and said ‘you don’t qualify’ and tried to sell us their own product, but because we didn’t have a deposit we couldn’t go down that route.”
Rawlings admits that these initial dealings left him feeling despondent so he decided to speak to HSBC, with whom he’s had a relationship for a number of years. “I didn’t realise that they had RGF funds as well,” says Rawlings. “They were fantastic. They managed to get it all through for us and it was very, very simple. Going to a lender that we had established links with made the whole process a lot easier.”
Best got the maximum amount available – £50,000 – and in November last year the company took delivery of the new machine, which has helped the printer to win business in new markets, according to Rawlings. In his application he said the company would save five jobs and create one new job.
“We’ve actually taken on two new members of staff as well as saving the five jobs,” says Rawlings. “Business is growing and capacity has more than doubled. It has really started to come together and gone to the next level all of a sudden, just within a couple of months of buying the new gear. We couldn’t have done it without the help of the RGF – we just didn’t have the finance available to fund it ourselves.”
Best Digital isn’t an isolated example. There are a number of other printers whose businesses have moved up to the next level thanks to the help of the RGF programme (see Fulprint case study boxout). And it isn’t just commercial printing companies who have benefited from the scheme. It’s also provided an important boost to equipment manufacturers who might otherwise have struggled to sell kit during the downturn simply because printers couldn’t get the finance they needed to get deals across the line.
According to Peter Jolly, UK managing director at Duplo, RGF finance has played a vital role in enabling the printing industry to invest in innovation and technology at a time when funding was otherwise hard to come by.
“As a supplier it’s played a really big part in putting new technology into customers’ sites who want to win new contracts, retain existing contracts, continue upgrading machinery and invest in new machinery,” says Jolly. “A 20% discount is very powerful and it makes the supplier customer conversation a little easier.”
Duplo has worked closely with Close, Compass and Five Arrows on the RGF programme and Jolly says that rather than just looking to “crawl to the finish line” on an investment a lot of companies have actually invested more money and bought more pieces of kit than they might otherwise have done were the government grant not available. As a result, it’s stood the industry in good stead for the future, argues Jolly.
“The amount of technology that’s been bought by RGF has allowed a lot of companies to accelerate their growth and overall the industry has become more efficient and hopefully more profitable on the back of doing around five years’ worth of investment in two years,” says Jolly. “The acceleration of that investment has in turn accelerated how efficient the industry has become, with a lot more early adopters in the UK than there’s ever been. The ones that have survived the downturn and invested thanks to RGF have seen their bottom lines grow and going forward they should be able to reinvest off the back of the technology they’ve bought.”
So while the clock might already be ticking on the final round of RGF funding, even when the programme’s coffers finally run dry it looks like it will help to feed numerous more rounds of investment activity in the future.
RGF eligibility criteria
Businesses must be...
- SMEs with fewer than 250 employees and a turnover under £35m
- Based in England – businesses in Greater London are not eligible to apply
- Want to strengthen or grow their business
- Unable to find funding elsewhere for the application – the minimum amount of funding available under the RGF programme is £5,000 and the maximum is £500,000. Medium-sized firms can receive a maximum 10% of asset cost (exc VAT) – small firms qualify for 20% (exc VAT)
- State aid compliant
- Investing private capital
- Creating or protecting jobs – applicants must commit to adding to their workforce or saving jobs. One job must be created or retained for every £10,000 of grant received, up to a maximum of £500,000. A year after receiving funding the company’s auditors must confirm that the commitments made to create or safeguard jobs have been fulfilled
Other regional funding options
Scotland The Scottish government has a range of initiatives to encourage business start-ups and grow existing businesses. These include financial support and advice, both directly, and via other delivery agents.
Wales The most recent round of funding under the Wales Economic Growth Fund was completed in June 2014.
Northern Ireland Northern Ireland is designated as 100% Assisted Area status. Invest Northern Ireland provides a range of funding options, including grants, to assist businesses in the country.
Case study: Fulprint
York-based commercial printer Fulprint was looking to replace an old four-colour Ryobi press last year with the latest model to meet changing customer demand and drive efficiencies.
According to finance director Bob Scrase customers were increasingly requesting silk art papers, as opposed to gloss art, but because silk art needs sealing the company was having to do this as a separate operation as its existing machine wasn’t capable of inline sealing.
The answer to this conundrum was to invest in the latest five-colour Ryobi 525GE B3-format press.
However, the company couldn’t raise the funds to buy the new machine outright. So Fulprint applied for a grant from the Leeds City Region Enterprise Partnership’s Business Growth Programme, which is supported by the RGF programme. Thanks to the RGF grant, bank funding and part exchanging its old Ryobi machine, the company took delivery of the new press late last year.
“By having a fifth colour on the press we can seal at the same time,” says Scrase. “We can also do spot colours now as some clients want a bit of silver and gold and other things that you can’t get out of a four-colour process. It will help us to remain very competitive. Lower wastage, faster set-up and inline sealing all represent a more efficiently produced and more cost-effective product for the customer.”
He adds that it was “fairly” easy to secure the RGF funding. “The pros are it’s a grant and not a loan, the cons are the time constraint on recruitment was almost a problem,” says Scrase, who explains that the company added two new members of staff as part of the funding agreement.
As for what words of advice he would offer any printing company currently weighing up whether or not to apply for RGF funding, Scrase simply says “go for it!”