Innovation is being punished by banks.

In an increasing trend that takes economics back to the eighteenth century, it appears that manufactures of goods that can be described as innovative or even slightly out of the mould are finding it more difficult to find bank financing to support research and development than companies whose product ranges are more conservative.

This disturbing piece of news comes as a result of a survey published by EEF, the UK manufacturers’ organisation. Based on a survey taken from more than 200 British companies, the EEF discovered that a lack of understanding in the financial sector of why certain manufacturing sectors needed to invest considerable sums of money in research and development, that in turn fostered innovation in product design as well as production methods.

The report divulges that around 40% of UK companies find it difficult, if not impossible, to be awarded finance, with the situation worsening over the last twelve months. The reasons given for this new slant in bank thinking, according to the EEF, are that many of the innovations that have been carried out during the financial downturn could be deemed as intangible. That means that the companies involved did not invest in tangible assets such as machinery and raw materials, but instead invested capital in improving their existing framework in such areas as systems management, sales and marketing and improved logistics. These are areas that in the eyes of banker should be financed by the company internally. The only way that the banks were interested in lending money to improve stability within a company or to finance research and development were if the owners or directors were prepared to personally guarantee any loans.

The EEF report wound up by recommending that the UK government’s mechanisms for supporting innovation be concentrated into a single entity, that would combine such schemes as regional venture capital funding, enterprise capital funds, innovation investment funds and research and development grants with considerably less dependence on commercial banks.

financial

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Tags: Bank, Banking, British Economy, Credit Crunch, Debt, Economics, Economy, EEF, Financial News, Innovation, Money, Recession, UK Banks, UK companies, UK Economy, UK government, UK manufacturers’ organisation, UK Recession