Sector Focus


Sponsored by: Lawrence Business Finance

‘Levelling up’ measures set to harm regional economy

Asset-based & cashflow loans – the difference

By Matthew Lawrence, of Lawrence Business Finance

Asset-Based Asset-based loans are secured against a company or an individual’s specific assets. Just like a mortgage on a house.

Purpose: To acquire or refinance new or used physical assets.

Amount: The loan amount will be a percentage of the asset value.

Rate: Interest rates are mainly based on LTV %. Asset-based loans tend to be cheaper than cashflow loans because there is something physical to be sold or collected in the event of default.

Cashflow Cashflow loans made by a bank or alternative lender who rely on the expected cash flows that a borrowing company will generate as collateral for the loan.

Purpose: Cashflow loans are for funding organic growth e.g new people, new products and markets, sales and marketing, innovation & business acquisitions.

Amount: The amount a lender will advance will generally be a multiple of what they consider to be your sustainable cash generation. It maybe expressed as X times EBITDA.

Cost: Cashflow loans are risky. They are not directly secured and are usually taken out to fund riskier activity i.e growth and acquisition. As a rule, this means they are more expensive than Asset-based loans.

Choice: Both Asset-based and Cash flow loans are available from banks and alternative lenders. As a rule, banks lend less, but are cheaper. Which is better? If you don’t

have assets for security, Cashflow is the way to go. If you can offer good security, you have a choice, asset- based is likely to cost less.

72 CHAMBERLINK April 2020

The government’s much vaunted ‘levelling up’ of the UK economy will see the West Midlands lose ground during the next three years. According to EY’s latest Regional

Economic Forecast, the region’s Gross Value Added (GVA) is estimated to fall to 1.4 per cent between 2020-3, down from growth of 1.9 per cent between 2016-9. This will be the biggest drop in

growth of all the English regions, with the West Midlands even being outpaced by neighbouring East Midlands. EY says that the reason for the

drop is the continuing decline of manufacturing, which still represents a sizeable part of the local economy, but also the levelling up policies. This will hit the West Midlands,

because the region has been one of the fastest growing in recent years, not least because of the level of support given to ‘Midlands Engine’. Between 2016-9 the West Midlands moved into the group of fastest- growing locations, and was one of only two places to perform better after 2010 than before. However, along with the North

East, the West Midlands still relies heavily on manufacturing, with the sector generating around 15 per of economic output.

Simon O’Neill: GVA set to drop in the West Midlands

Unfortunately, the outlook for

manufacturing is ‘relatively poor’, a situation contributed to by the global forecast in goods trade being weak, and also the prospect of there being ‘more friction with the EU in future’. EY says that technological

change will also contribute towards the decline in manufacturing employment. One result of the expected drop

in the economic performance of the West Midlands will be a reduction in job numbers, with employment dropping by two per cent per

annum between 2020 and 2023. By 2023, EY expects to see

employment growth of 0.3 per cent for the West Midlands, which will underperform the forecasted UK rate of 0.7 per cent. The sectors that are expected to

see the biggest uplift in employment are arts, entertainment, recreation, administrative and support services activities. Simon O’Neill, EY’s Midlands

managing partner, said: “Over the last decade, devolved powers have helped our region outperform the majority of its peers. “Whilst it’s easy to be

disappointed by a forecasted drop in GVA growth, largely driven by pressure on manufacturing, it is clear the West Midlands is still thriving and the prospect of Coventry as the UK City of Culture and the Commonwealth Games provides further momentum to build upon. “Looking forward the region must

think about how it can build upon its existing strengths and – although the sectors’ growth is set to slow – manufacturing will remain at the heart of the region as it continues to produce the most economic value. “To ensure the region retains its

competitive edge on the global stage, it must continue to lead the way on using innovative technology to produce high-value manufacturing.”

Helping business beat Covid-19

A human resources expert in Sutton Coldfield has welcomed the financial measures outlined in the Budget to help small businesses offset the growing impact of the coronavirus. But Sara Abbott, from The HR Dept, said that her

company was already advising businesses on how to lay-off staff or make them redundant. She said: “We are very pleased to see a range of financial support measures being announced for the nation’s SMEs. We are sad to say that up and down the country we are having to advise good companies on how to lay off staff or start redundancy consultations as the impact of the coronavirus pandemic bites. “The government had already announced that

statutory sick pay (SSP) would be payable from day one for those ill or unable to work because they’ve been advised to self-isolate, or who are caring for people in their household who are ill or self- isolating.” Ms Abbott’s colleague, Caroline Raybould, said

that the Chancellor’s subsequent announcements about job retention were also to be welcomed. She said: “He announced an unprecedented and

comprehensive list of measures to support firms both large and small. “The rules applying to the coronavirus job

retention acheme are subject to employment law but it applies to all businesses, sole traders, limited companies, LLPs, partnerships and charities. It is available to staff who are paid through PAYE. “The scheme is designed to support those

employees who may be laid-off or made redundant and who consequently would not be working for the business at all during this time. This scheme is not to top-up the wages of those who are on reduced hours and continue to work, or those currently on sick leave or in self-isolation. “Currently an employer can only-lay off an

employee if there is an express term in their contract to do so. If there is no such clause, an employer will need the employee’s agreement before placing them on furlough leave. “We feel it is unlikely that employees will refuse furlough (temporary) leave if the alternative is to be made redundant. And just to be clear, an employee cannot ask to be furloughed. Although you may find that some will try, as receiving 80 per cent of their salary without working will sound attractive to some. @If agreed, the employee’s status changes to

‘furloughed employee’ and HMRC will pay 80 per cent of their wages, up to a maximum of £2,500 per month. Employers may, if they can afford to, top-up the payment so that the employee receives full pay.”

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