PAUL SPENCER, REGIONAL DIRECTOR SME BANKING IN THE SOUTH & WEST, LLOYDS BANK COMMERCIAL BANKING
The latest Budget announcement has revealed that the Government is doubling its export funding to £3 billion and that interest rates on these loans are being cut by a third. With this positive news, 2014 could very well be the year for UK firms to expand internationally.
Encouragingly, there has probably never been a better time to borrow money due to the number of discounted funding schemes and the range of finance options available to British firms to support growth. The absolute cost of borrowing for our customers has more than halved since 2007.
But even with the UK being the sixth largest economy on the globe and the second largest exporter of commercial services, only one in five of the UK’s small and medium-sized businesses (SMEs) are exporting their goods, according to figures from the Confederation of British Industry (CBI).
To help UK firms take a leap into international waters, business organisations such as UK Trade & Investment (UKTI) can provide expert advice and practical support for enterprises with plans to expand overseas.
The organisation aims to enhance the overall competitiveness of companies through overseas trade and investments, while continuing to attract high levels of direct foreign investment to the UK.
Lloyds Bank offers a range of support, including the provision of contract bonding, to help secure contracts with overseas buyers, export letters of credit to ensure payment from them, and a range of working capital to finance the completion of export sales. In addition, exporters are able to manage their sales in currencies other than sterling, through a range of foreign exchange support services.
Other options include UK Export Finance, a Government department, which works closely with banks, exporters, buyers and project sponsors to support financing for exporters and ensure they are protected against non-payment by their overseas buyers.
Exploring these options is essential as Britain’s strongest opportunities for export growth lie in the Asia-Pacific region according to the latest Business in Britain Survey (BiB) by Lloyds Bank.
This report also found that optimism regarding sales and orders is reflected in rising expectations for trade abroad with just five per cent of businesses now convinced their exports will drop in the first half of this year, compared to 54 per cent predicting an increase in exporting.
The most successful exporters from the 54 per cent questioned understand the impact that cashflow has on their business. Research from Lloyds Bank in relation to invoice finance found that SMEs are currently sitting on £770 billion in untapped assets that could be used to fund growth, with a further £291 billion owed to UK firms by customers.
One firm which has taken advantage of the funding and Government-backed schemes supported by the bank is Banbury-based Toby Electronics. Founded in 1983 by Tim Portlock and his father James, it has since grown to be one of the leading distributors of electronic hardware and components in the UK, exporting products to Europe, Asia, Brazil and the United States.
Since James’ retirement ten years ago, Tim and his brother Jim have continued to grow the business, recently winning a contract with a major international electronics manufacturer which will see Toby Electronics’ annual turnover reach £8.7 million this year.
The brothers approached Lloyds Bank Commercial Banking which provided them with the £880,000 loan for a new warehouse under the Funding for Lending Scheme, which offers a one per cent discount on all interest payments for the life of the business loan.
With more than half of the SMEs from the BiB report stating that they are more confident about investing in growth than they were 12 months ago, firms are still missing out on the opportunity to recruit new staff, break into new markets or develop new products because they are not harnessing the full range of funding options available, that could unlock the value in their assets or invoices.
Invoice finance can help businesses release cash quickly, giving them access to up to 90 per cent of the value of their issued invoices, often within 24 hours, which could be used by a firm to help fund expansion projects.
By taking the uncertainty out of payment times, invoice finance can also give a business control over the working capital they have access to. Because it can grow with the firm’s turnover, it can also give businesses greater flexibility by increasing the amount of cash available to them as their order books increase in size.
In light of growing hopes for exports, weak UK demand is no longer such a worry for businesses either. Whilst a third of businesses still have concerns about domestic markets, this is a significant drop from July 2013 when nearly half of businesses stated it was the biggest challenge they faced.
Whatever a firm’s situation – whether they are looking to start exporting, or want to build their current international activity – it is important to explore all the opportunities available and be confident in the fact that there are forms of support out there to help and encourage growth.
If you are considering investing in export markets, or want to know more about the range of export finance support that might be available to you, please feel free to contact a Lloyds Bank relationship manager who will be very happy to arrange a discussion with an International Trade Specialist.