According to UK Export Finance, up to 3,000 smaller businesses and 500 medium-sized and large businesses in the UK may require specific assistance to finance their export activities over the next three years. Paul Croucher discusses the various types of assistance available.
Construction is a sector in which Britain has a significant competitive advantage. We have world-class expertise in architecture, design, and engineering, and British companies are pioneering sustainable building solutions, with BreeAM being an internationally recognised standard.
It is also a sector with significant growth potential. The global construction industry is expected to grow at a 4.3 percent annual rate until 2025.
Export contracts are a logical next step in the growth of many small and medium-sized firms in the sector. Not only does exporting provide access to new markets, but there is clear evidence that winning overseas contracts increases a company’s productivity, innovation, and profitability.
According to UK Export Finance, up to 3,000 smaller businesses and 500 medium-sized and large businesses in the UK may require specific assistance to finance their export activities over the next three years. That’s where expert advice comes in handy, and UK Export Finance (UKEF) comes in handy.
Our role at UKEF is straightforward: we facilitate exports that would not otherwise be possible. We supplement the commercial sector’s export finance assistance and help with things like making a proposal to your bank more acceptable by taking a portion of the risk. In some cases, the reassurance of our involvement may also assist a bank in offering you more favourable terms.
We have given £1 billion in assistance to small and medium-sized businesses over the last three years. Our assistance enabled exports to more than 71 countries in 2013. We work with companies of all sizes, ranging from Building Design Partnership (BDP) to Carillion and JCB.
Here are some of the ways we can assist.
Letters of Credit are one of the most secure methods of ensuring payment. UKEF provides your bank with a guarantee so that it can confirm a Letter of Credit.
Overseas contracts always carry the risk of not being paid or being unable to recover your costs if the contract is terminated for reasons beyond your control. Although commercial insurers can cover you against these risks, there are some countries and buyers that they do not feel comfortable covering – particularly in new and emerging markets – and therefore only provide very limited coverage or charge premiums that are simply not affordable for a small or medium-sized business.
The export insurance policy offered by UK Export Finance is intended to fill that void. For example, when the design and engineering firm Houlder won a three-year contract to project manage the construction of a floating storage and offloading vessel off the coast of Libya, we implemented such a policy.
You may need to request a trade loan from your bank in order to fulfil an overseas order, but if your bank is unable to provide those funds, there is still assistance available. The Export Working Capital Scheme of the UKEF provides the bank with a partial guarantee. We ensure that your company has the cash it needs to complete the contract by sharing the risk.
Buyers may request advance payment or performance bonds issued by your bank for new export contracts. Because these bonds are typically unconditional and payable on demand, banks frequently require 100% cash cover for their value.
One option is for your bank to request that UK Export Finance underwrite up to 80% of the bond’s value. This allows the bank to release the majority of the cash it would have otherwise held.
Building Design Partnership, an international firm of architects, designers, engineers, and urbanists, had financed its international expansion with retained earnings, but its clients in the Middle East demanded performance bonds equal to 10% of the total fee.
BDP and their bank arranged for performance bond coverage through UK Export Finance. This meant that BDP could issue bonds for larger contracts than it could with its own funds. This cover has been used for three major projects in the region by the firm. Without UK Export Finance, BDP would not have been able to enter what was a strategically important market for them.
Long-term financial planning
Our Buyer & Supplier Credit schemes support loans to overseas buyers and enable exporters to draw down cash payments for longer-term finance with repayment terms of more than two years. Our Direct Lending Facility is another option (DLF). This is a loan made to foreign buyers to help them finance the purchase of goods or services from UK exporters. It offers loans to buyers of UK exports at the lowest possible interest rate permitted by OECD rules, and Carillion was the first company to benefit from DLF when UKEF assisted in arranging £75 million in financing to support a contract with the Dubai World Trade Centre.
It’s critical to have a good relationship with your bank when it comes to export financing. We are here to assist them in supporting your company, but they should be your first point of contact. Determine your likely requirements and inquire with your bank about their relationship with UK Export Finance. Most major banks have agreements to support UKEF schemes and will work with you to submit a support application.