‘May you live in interesting times’ is an apocryphal Chinese saying that is supposedly meant more as curse than blessing. But whoever said it, no one can deny that these are interesting times, even if not in a good way. The spiralling costs of energy, driven by supply and distribution capacity shortages originating in the pandemic lockdown periods, then exacerbated by Vladimir Putin’s invasion of Ukraine and the closing and possible sabotage of a major pipeline for Russian gas into Europe have fed a perfect storm, coming on top of supply chain issues and skills and labour shortages left over from the Covid-19 pandemic. In the face of reports circulating about companies coming to the end of fixed-price energy supply contracts facing five or six-fold increases that would simply drive many out of business, the UK Government announced in late September that it would fund an energy price cap for business similar to the one announced earlier that month for consumers.

One critical difference, however, is that while consumers get a two-year price cap, businesses have so far been promised support for only six months, with a review planned after three months. While few presently foresee a reliable resolution to the issues by then, it is at least a breathing space to consider the options and to put plans in place for what may ultimately be a deferred rather than cancelled price hike – on top of the effective doubling of prices since this time last year.

Director Mark Nelson of Compass Business Finance comments, ‘The cap will make a significant difference in the short term, but people shouldn’t be planning less than six months in advance. It is good news but it’s still a massive concern for six months’ time – or three months, when it’s to be reviewed – some might choose to close their doors on the basis of the uncertainty. ‘However, this does give some time to decide and perhaps restructure. No one is shutting their doors yet because of prices and the mindset is to find a solution, though things are moving so fast that there’s been no time to recognise or feel the impact, as most have yet to reach the end of their fixed price agreements.

Ultimately print prices will have to move but there’s concern that this will push demand down,’ he adds, noting that the summer period had been generally buoyant. Ian Hamilton, area sales manager and renewable energy specialist at Close Brothers Asset Finance, also urges swift action.

‘Companies should review their current energy costs as soon as they can. I have seen estimates for variable electricity prices recently of between 60 and 102p per kWh, and with current fixed rates finishing this could lead to a significant increase on their current deals. Current forecasts suggest they could rise further, with no guarantee they will revert to former levels. ‘Have companies budgeted for such as increase? Are they able to pass these price increases on to their customers? Many commercial fixed rate deals are expiring on 1 October but fortunately the government has stepped in with a six month support package. This will give customers breathing space to analyse where their main energy costs are coming from and what future costs might look like, even if they are on extended fixed rate deals.’

Two paths you can go by Essentially, there are two threads that printers can tackle: the first is to reduce energy costs by cutting consumption through efficiency measures and/or installing their own local power generation capacity; the second is to refinance to cope with the increased bills. And unlike physical paths, you can take them both at once.

 ‘Looking to the future, business owners would do well to consider renewable energy products such as solar PV, LED lighting and CHP (combined heat and power) engines to reduce future costs over the long-term,’ says Mr Hamilton, who adds that Close Brothers has for a long time helped finance such measures, which as well as providing some insulation from price shocks also represent long-term solutions. He comments, ‘Unsurprisingly, interest has grown hugely in recent weeks and we are supporting existing customers, especially the high energy users, and are being proactive in working with them on appropriate solutions,’ and goes on to again urge timely action.

‘The likelihood is interest will only increase in the coming weeks and months, and with pressure on installers and the product supply chain, for example solar panels, we would urge businesses to take steps sooner rather than later.’

Solar power, like any single-source renewable, isn’t a panacea, being both seasonal and affected by day-to-day weather conditions, but large rooftop arrays can provide a considerable proportion of the power requirement even on overcast days, and every kilowatt-hour you don’t have to pay for is going to help both your business and the environment. If you generate more than you need, you may also benefit from an export tariff to sell it to the grid. Compass has also been active in supporting sustainable energy measures. Mr Nelson reports that for a period there was government support for anaerobic digestion biogas generation which was popular, but the tariffs were dropped. He advises that even putting solar panels on rented roofs is worth doing as the installation can pay for itself, even if the landlord winds up keeping the panels. As energy prices rise, the payback period on initiatives like this will only shorten, too.

Mr Hamilton says, ‘We work with firms, understanding their usage and costs, and by working with trusted suppliers and installers, demonstrate the savings benefits of installing renewable assets. Finance is available up to seven years, which helps any initial capital outlay and spreads the costs. We can also tailor the finance terms to match seasonal income, if required.’ 

Some of the lessons and government responses from the Covid-19 pandemic may also have been blessings in disguise, even if rather small ones compared to the scale of the impact on businesses and lives, suggests Mr Nelson.

‘We saw a resurgence in late 2020 and early 2021 with the CBILS investment support. Firms got through the shock and cash need, were able to restructure and rationalise so they could invest in diversification.’

Compass head of marketing Sarah Lees also noted a focus on sustainability attaching to those investment, with companies replacing two machines with one more productive one and looking into energy efficiency, ‘which will stand them in good stead,’ she observes. The CBILS loans, which were government-backed to 80% of their value, were due to end in December 2020 but because they attached eligibility conditions to delivery and installation, had to be extended to March 2021 because of supply chain issues. That scheme has well and truly finished now but some of the investment incentives from that period are still in place. ‘The Annual Investment Allowance remains at the higher rate of £1 million per year, tax free, indefinitely,’

Ms Lees says, adding that the planned corporation tax increase from 19% to 25% has been cancelled, though since that’s levied on profits it’s perhaps less of an immediate help. It also looks as though the pandemic Super Deduction, introduced in March 2021, which granted 130% capital allowance on qualifying equipment, and 50% first year allowance on special rate assets, will end as planned on 31 March 2023, but that still leaves some months to invest, for those who can. Outside of these measures, print industry-focused finance specialists can help to optimise the other outgoings to improve cashflow and increase flexibility. ‘We can help with cash reserves by reviewing finances,’ explains Mr Nelson. ‘If Firms are willing to share the information, we can look into the whole business and achieve savings via restructuring. We’ve seen improvements in invoicing and management of cash. Every business is different, and every one adapts to the market. We’ve been through shutdown and we know it’s not the solution.’

Mr Hamilton adds, ‘We also specialise in asset refinance and debt restructure, affording the potential opportunity to help businesses reduce monthly asset finance commitments to deliver an improved cash flow position which can prove to be a powerful tool in challenging times.’ Lobbying for ongoing support ‘Challenging times’ is perhaps something of an understatement, with the government seemingly at loggerheads with the Bank of England at the time of writing.

Ian Hamilton – no guarantee prices will revert to
former levels

This is why industry bodies including the BPIF and IPIA are working together to lobby government for extended support on the basis of the large number of SMEs in print surviving on thin margins, and the fact that it is an energy-intensive business. To support an application for ‘vulnerable industry’ status, which would gain longer-lasting government help, the BPIF is running a survey online, in which printers may provide figures – anonymously and in confidence – that illustrate the effect of the energy price rises on the viability of their businesses.

Pending any such classification and offer of further assistance by the government, we can only agree with Mr Nelson: ‘Everyone would have loved more than six months’ support, but no one knows where we’ll be then. The government has bought some time.’ And as a fictional wizard said, all we must decide is what to do with the time given us.

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The SME Confidence Tracker Survey reported that 79% of SMEs believe that the current economic climate is worse than during the pandemic.

Founder Mark Nelson said, ‘We’re seeing businesses being forced back into survival mode, again, many of whom are having to take urgent action to navigate their way through a whole host of critical issues. Following the mini budget, businesses have been provided with some short-term relief, however, many of our customers are looking for longer term solutions.’

Compass has released a discussion paper on mitigating the energy crisis, looking at practical steps and ideas for managing businesses through the period and to advance towards their sustainability goals, including examples from RMC Digital and Browns Print.

Speaking about its solar project, Nicole Spencer, managing director of RMC Digital, said, ‘Our energy costs this summer were half what the usually are, and although we had originally estimated a 5-year payback, rising energy costs have meant that the return on investment has been much quicker.’

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The Business Finance Council is jointly chaired by the BEIS Secretary of State, the Economic Secretary to the Treasury and the Minister for Small Business, Consumers and Labour Markets. Its members include major high street lenders and providers of alternative finance, UK Finance and the Finance and Leasing Association, the British Business Bank and business representative organisations.

The Council collaborated with finance providers, business organisations and government to identify areas that are significant in ensuring that the SME finance market works effectively, drawing up five high-level commitments from these.

The five pledges in the Charter, to which Compass has detailed its specific commitment, are:

• We’re open for business and ready to lend

• We’ll help you build back better after Covid-19

• We’ll support your application and signpost other options if needed

• We’ll treat you fairly at all times

• We’ll work with the government-owned British Business Bank to support SMEs.

Mark Nelson, director of Compass, commented, ‘Working in collaboration with the government and other finance providers is key to being able to offer the best possible support to the market. Signing up to the Charter reaffirms the commitment we have to our customers, to always do our best for them.’

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This additional investment will further increase the flow of funding for asset finance products into UK-based smaller businesses operating in the print, packaging and manufacturing sectors. It will also provide the specialist lender with additional funding for smaller and medium-sized businesses requiring business critical equipment finance over the next three to five years, and contribute to Compass Business Finance’s own growth trajectory whilst supporting businesses as they recover from the pandemic.

Judith Hartley, CEO of British Business Investments, commented, ‘British Business Investments continues to support independent operators in the asset finance sector. This increased commitment to Compass Business Finance Ltd helps to diversify the finance market and provide more choice for companies across the UK. We are happy to continue working with Compass Business Finance Ltd over the next five years, to help those UK companies get the finance they need.’

Mark Nelson, a director at Compass Business Finance, added, ‘The increased commitment from British Business Investments will enable us to further support the demand for funding across our core markets. It is encouraging to see businesses seeking finance for investment and growth, and to continue our provision of funding support in a simple and straight-forward manner.’

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The commitment amounts to £15m of block discounting funding. It will provide the specialist lender with funding for smaller and medium-sized businesses over the next three to five years, and allow it to continue its own growth trajectory.

Judith Hartley, CEO, British Business Investments, commented, ‘British Business Investments supports independent operators in the asset finance sector by providing additional funding and widening the choice of finance options that smaller businesses across the UK can access on the market. We look forward to working with Compass Business Finance Ltd over the next five years to help those businesses get the finance they need.’

Mark Nelson, director of Compass Business Finance, added, ‘The commitment from British Business Investments, will enable us to meet the growing demand for funding in our markets, including the provision of CBILS and other asset-based finance. Having the ability to support our customers and maintain our high service levels is paramount, and this partnership gives us the confidence to know that we can continue provide that.’

Compass Business Finance has been partnering with the British Business Bank for several years and has participated in several initiatives designed to support UK businesses, including Regional Growth Funds, the Enterprise Finance Guarantee and currently, the Coronavirus Business Interruption Loan Scheme (CBILS).

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As part of the 2020 Budget Rishi Sunak announced that CBILS will temporarily replace the Enterprise Finance Guarantee (EFG).

As an accredited lender under the British Business Bank’s EFG programme, Compass Business finance will be offering asset finance via CBILS to smaller businesses, predominantly in the manufacturing sector.

CBILS provides lenders with a Government-backed guarantee for up to 80% of the outstanding balance of eligible facilities, potentially enabling a ‘no’ credit decision from a lender to become a ‘yes’. It supports facilities of between £1,000 and £1.2m to smaller businesses that are viable but unable to obtain finance from their lender due to having inadequate security to meet the lender’s normal credit requirements.

Director Mark Nelson explained, ‘These are unprecedented times and amid the uncertainty, CBILS is one way in which we can extend finance to companies who may not otherwise have the required security. There are also many other finance options available to businesses who may need to release additional funds at this time or over the coming months.’

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Ten years ago, the world was a very different place to the one we live in today: there was no such thing as ordering an Uber on your smartphone; your smartphone was not really that smart; and Donald Trump was just a rich businessman with a TV show and a handful of golf courses. There was also the possibility that if you approached a lender looking for finance to buy software, you might be laughed out of the room.

Much has changed since then, and the prospects of walking out of the bank with a deal for software is now very much better. According to Luke Mulligan, sales executive at Sheppex Asset Finance, this is partly due to a much more widespread view that software can bring tangible benefits to a business.

‘In 2008, there were a lot of limitations on what banks would lend for. Since then, software has become more common everywhere, and banks are keen to support business growth,’ he said. ‘Software is seen as a viable option to improve a business, and increase turnover and profit margin. It’s not just replacing a piece of kit; with software you can see that growth in the business from when you made that investment.

‘Now, many of the banks have an appetite for this and companies see it as a viable option to improve their production speeds, generate more business and concentrate on getting more work through the doors.’

A traditional view

If there is a more enlightened view of software among the lending community nowadays, it is also true that not every institution is particularly interested in such deals. Some lenders still want the security of a hardware asset that will retain some residual value.

Close Brothers Asset Finance, for example, has a more traditional view. Paul Philbrick, sales director for the firm’s print division, explained that the software it has typically financed in the past has been as part of a bigger overall investment, normally including other assets.

‘We’ve tended to help our customers by looking to refinance more secure assets. This is because it’s traditionally given them access to more affordable funding with better terms – software finance is historically more expensive as it’s typically unsecured,’ he commented.

That said, Mr Philbrick adds that if printers are thinking about getting finance for a software deal, they should still approach Close Brothers, as it ‘can make something happen’. However, if you’re not sure who to approach, who might say yes and who might say no, then Katie Dowse of Clear Asset Finance says she can help.

‘We know the funders who do or don’t finance software. All the ‘Tier 1’ such as Investec will do software, with an element of training and services included as well, because they know that comes with it. They are very automated, and it’s based on the ability to pay. The more traditional funders don’t – they are more asset and residual value-based funders. High street banks will give you a loan for it but that’s not the most sensible way to do it.

‘We will try to find the finance for them. We view it like any other asset, it’s as simple as that.’

The pity is that many printing companies are unaware that they do not have to pay cash or use a finance deal from the software vendor itself to make a big software acquisition, says Ms Dowse. This lack of awareness can lead to limitations being imposed on the scale of the software purchase, or even in the idea being scrapped altogether.

‘Don’t restrict your vision of what you want software to do because you think you need to pay cash and you can’t afford the implementation you want. You really need to think about how you will use the software, and commit to using it, otherwise it’s all a waste of time. If it means paying for another week’s training, then that’s part of it.’

It also requires some careful thinking about the overall impact of a big software implementation on the business, she said: ‘You’ve got to look at the return on investment, just like you would with a new press. You have to consider that if you are going to invest in software you are not purely buying software – it’s also about the training and support that that company will give you.

‘There’s sometimes an under-spend on software, rather than looking at the whole investment strategy, which could include some downtime while the training is going on. You might have paid £40,000 for it and then you don’t really use the software because no-one really knows how to use it. Look at that whole situation and take the time to make the right decision. Get the right company with good technical support and training and make sure you buy enough licences. I’ve heard of situations where people have said, we can only pay cash, we will only get three licences, when they really needed more.’

Compare the market

Mark Nelson of Compass Business Finance agrees that requests for finance deals to buy software and other unsecured items that have no resale value are becoming more prevalent in the market, and he also offers some advice on how to approach the situation.

‘If the supplier of the software offers you finance, be sure to check it is competitive in the market – some will be, but some will be extortionately expensive. Also, look at a couple of options, ensuring one has multiple sources of finance, rather than just the business they work for – this allows for a large transaction to be split into smaller, more manageable sizes, thus reducing the size of the risk to each finance company.’

Will any security or personal guarantees be required? Possibly, says Luke Mulligan of Sheppex, although he stresses that every deal is assessed on its own merits. ‘Most of the businesses we work with in the print sector are SMEs, and it may be necessary to take a personal guarantee with that type of business if the balance sheet does not support the lending,’ he said. ‘We would look at year-end accounts and bank statements to get an understanding of the company’s financial standing. We need to ensure that the purchase is affordable and will benefit their business, and we would look to underwrite a deal without a personal guarantee if we can see that the software will improve the business.’

Mr Mulligan advised getting good information from the software vendor – information such as the benefits the implementation will bring to the business, the reduced production costs, the increased margins, the monthly savings it will accrue – to smooth the path to securing a successful finance deal.

‘Get the financial indicative costing in place. If the finance costs £500 per month and the production gain is £1000 per month, it’s a no-brainer,’ he added. ‘If the business has been trading for years, has got a good balance sheet, and the software will help grow the business, there’s a view that the business will be able to afford it.’

Judging by the experience of Compass, Clear and Sheppex, printers are approaching brokers looking for software deals with increasing regularity, even at a time when there are numerous subscription and Cloud-based models for licencing software. ‘There’s still usually an initial cost, and we are often financing that initial cost,’ said Luke Mulligan.

The message really is that big software purchases can be made easier for a printing company by exploring different options for finance. The beneficial impact of software on a business’s efficiency is well accepted in today’s market, and many lenders are willing to look at these deals now by assessing the strength of the company’s financial footing. There is also no need to impose unnecessary limitations on the scale of a software implementation because of cash restraints. The decision can then be about business need, future scoping and return on investment.

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Over the past 26 years, Mr Bunker has worked in client management across the print, packaging, transport, construction and engineering sectors, whilst also leading several major projects. He has spent the majority of his career at Close Brothers Asset Finance, most recently as assistant managing director of the company’s print team. 

‘As the business continues to grow, it’s crucial that we have the right people and structure in place to both support the existing business and keep the momentum going into the future,’ said Mark Nelson. ‘David, and the wealth of experience he brings, is a key part of this.’

‘I have long held Compass in high regard and look forward to playing a significant part in the next stage of their growth,’ Mr Bunker added. ‘A key focus will be in continuing to develop their stakeholder relationships.’

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