Gareth Oakley, Regional Director for London & East, Lloyds TSB Commercial Banking
For businesses across the UK, the rallying cry to be bold and look to new markets is something they’ve grown accustomed to hearing from politicians and business leaders.
The latest Lloyds TSB Commercial Banking Business in Britain report showed that one of the greatest threats to UK companies is weaker domestic demand. Firms that have taken the step into overseas markets are faring better than those reliant solely on home markets, making this the ideal time for firms to start investigating their exporting options.
However, when we spoke to small and medium-sized firms across the country about their exporting plans, we found that less than a fifth of firms exported. While the South East appears to be the dominant exporting region with 40% of companies already trading overseas, areas like Wales are falling dramatically short with our survey revealing that almost eight out of ten (79 per cent) Welsh companies stating they did not currently export and had no plans to do so in the near future.
Why are we seeing companies failing to respond to opportunities to expand overseas?
When asked about why they had no plans to export, the most commonly cited reason among firms (31 per cent) was that exporting was too costly and surprisingly over a quarter of the firms surveyed (26 per cent) stated that they had simply never thought about exporting as an option.
Official figures show the top five markets for exports are the USA, Switzerland, Germany, Belgium and the Netherlands. However, they also reveal that the number of exports to non-EU countries had fallen, with the number of goods and services sold to India falling by almost 40%. This jars slightly with the messages we hear about the opportunities in countries such as Brazil, India and China, and those other emerging markets like Indonesia, Colombia and Egypt.
Encouraging businesses to look outside the UK and beyond Europe
Taking the first step to exporting can be daunting, and while it pays to be cautious, with the right help and guidance, trading overseas can be a catalyst for growth for many firms.
Companies always face a degree of risk when they decide to start exporting; and smaller businesses, without considerable in-house resources, may feel particularly exposed. However, we have seen many firms taking the plunge over the last year. There are numerous sources of help available to businesses looking to export, including banks, UKTI, and other business organisations.
Having access to the right type of finance can play a fundamental role in ensuring businesses are in the best position to take advantage of exporting opportunities, and having a full understanding of the different support options available can be extremely beneficial in freeing up capital to invest in exporting plans.
There is a common misconception that banks aren’t lending at the moment and while I can’t speak for others, I know that for us, this is not the case and that actually we approve eight out of ten loan and overdraft requests. Many firms may be missing out on opportunities because they are focused on consolidating their operations, keeping a close eye on expenditure and preserving their cash flow.
In fact, we know that our SME customers still have substantial headroom on overdrafts. Less than 55 per cent of our borrowing facilities are being drawn upon – lower than in 2009. So for business leaders who remain cautious about exporting, it is important to remember that there are options available that can make this much easier.
In fact there has probably never been a better time to borrow money due to the number of discounted funding schemes and the range of funding options now available. The absolute cost of borrowing for our customers has more than halved since 2007, and the Bank of England has reported that banks’ term funding costs have fallen “significantly”.
One option for securing additional finance is to consider a term loan. This is a structured borrowing method, based on lending against a security, such as a company’s assets or another form of guarantee. Overdraft facilities can also be useful in boosting your working capital if, for instance, you are planning to start an exporting project and need additional funding to invest into new machinery or labour.
There are also a number of Government schemes designed to help growing firms, including the Government’s Funding for Lending Scheme which enables businesses to benefit from discounts on their interest rates. Under the scheme we offer all our customers a 1% discount on interest payments for the life of their loan and we have committed to lend £5bn to SMEs through the initiative this year.
Asset based finance facilities, which include invoice discounting and factoring, may also be useful. This form of support has increased in popularity in recent years as an alternative to traditional loans and overdrafts to boost working capital when required.
This cash flow solution is leveraged against a business’ order book and therefore grows in-line with sales, enabling a firm to immediately capitalise on increased demand, creating greater financial headroom which often comes in handy when exporting to Europe and beyond.
Whatever your situation, it is important to explore all the exporting opportunities available to you and be confident in the fact that there are support options out there to help you achieve your goals.