UK Export Finance estimates that up to 3,000 smaller businesses and 500 medium-sized and large businesses in the UK could need specific support to finance their export activities over the next three years. Paul Croucher discusses what support is available
Construction is a sector where Britain has a strong competitive edge. We have world-class expertise in architecture, design and engineering, and British companies are leading the way in sustainable construction solutions, with BreeAM being an internationally recognised standard.
It is also a sector with considerable growth opportunities. The global construction industry is set to see grow at an estimated annual rate of 4.3% until 2025.
For many small and medium-sized firms in the sector, export contracts are a logical next step to growth. Not only does exporting open up new markets, but there is clear evidence that winning overseas contracts makes a business more productive, innovative and profitable.
At UK Export Finance, we estimate that up to 3,000 smaller businesses and 500 medium-sized and large businesses in the UK could need specific support to finance their export activities over the next three years. That’s where specialist advice is invaluable and where UK Export Finance (UKEF) has a part to play.
Our role at UKEF is simple: to make exports happen that would not otherwise be possible. We complement the export finance support available from the commercial sector and help with assistance such as making a proposal to your bank more acceptable, by taking a share of the risk. In some cases, the reassurance of our involvement can also help a bank offer you facilities on more attractive terms.
In the last three years, we have provided £1bn of support to small and medium-sized businesses. In 2013, our support has enabled exports to more than 71 countries. We work with businesses of all sizes, from firms such as Building Design Partnership (BDP) to Carillion and JCB.
Here are some of the ways in which we can help.
Letters of Credit are one of the safest ways to make sure you get paid. UKEF provides a guarantee to your bank so it can confirm a Letter of Credit.
Overseas contracts can always carry the risk that you will not be paid or be unable to recover your costs because a contract is terminated beyond your control. Although commercial insurers can cover you against these risks, there are some countries and buyers they don’t feel able to cover – particularly in new and emerging markets – only provide very limited cover, or charge premiums that are just not economic for a small or medium-sized business.
UK Export Finance’s export insurance policy is designed to fill that gap. For example, we put such a policy in place for the design and engineering company Houlder when it won a three-year contract to project manage the construction of a floating storage and offloading vessel off the coast of Libya.
You may need to ask your bank for a trade loan to help fulfil an overseas order, but if your bank is unable to provide those funds, there is still help available. UKEF’s Export Working Capital Scheme provides a partial guarantee to the bank. By sharing the risk, we ensure that your business has the cash you need to deliver the contract.
For new export contracts, buyers may ask you for advance payment or performance bonds to be issued by your bank. As these bonds are generally unconditional and payable on demand, the banks often require 100 per cent cash cover for their value.
One solution is for your bank to ask UK Export Finance to underwrite up to 80 per cent of the value of the bond required. This allows the bank to release most of the cash it would otherwise have held.
In the case of Building Design Partnership, an international practice of architects, designers, engineers and urbanists, the firm had financed its international growth out of retained earnings, but in the Middle East its clients required performance bonds that were equivalent to ten per cent of the overall fee.
BDP and their bank arranged performance bond cover with UK Export Finance. This meant that BDP could provide bonds for larger contracts than it could have done from its own resources. The firm has used this cover for three big projects in the region. Without UK Export Finance, BDP would not have been able to move into what was for them a strategically important market.
For longer-term finance, where repayment terms are over two years, our Buyer & Supplier Credit schemes support loans to overseas buyers and enable exporters to draw down cash payments. Another option is our Direct Lending Facility (DLF). This is a loan to overseas buyers to enable them to finance the purchase of equipment or services from UK exporters. It provides loan to buyers of UK exports at the lowest rate permissible under OECD rules and construction company Carillion was the first company to benefit from DLF when UKEF helped to arrange £75m of finance to support a contract with the Dubai World Trade Centre.
Find out more
When it comes to export finance, it’s important to have a good relationship with your bank. We are here to help them support your business, but they should be your first point of call. Identify your likely needs and ask your bank about their relationship with UK Export Finance. Most leading banks have agreements to support UKEF schemes and will work with you to submit an application for support.
Paul Crocucher is head of trade finance and insurance solutions at UK Export Finance