A timeline on how the UK government sought to solve the Brexit SME export crisis
The FCA has announced changes to the retail banking market and to the peer-to-peer lending market, which could change the effect that both are having on the SME leasing and lending market.
The challenges of a possible no-deal Brexit mean the severing of frictionless trade and export of British SMEs to Europe. While complexity abounds, the answer posed by Liam Fox and the department for international trade would mean a more globalised export focus to other markets.
The issue with this is expense. The further you travel and the more distant the market (without which there may not be a trade deal in place, meaning unequal tariffs), the greater the costs.
For most SMEs, the sums would not work out, meaning GDP fall and a knock-on decline in tax take and national wealth.
The government has attempted to handle the issue by investing in cost reductions for SME exporters.
Here we cover the timeline, related to leasing, that UKEF moved towards supplying SMEs with credit to support their exports.
a message of intent
In 2017 at the Leasing Life Chief Executive Lending Forum, Tahir Ahmed, head of short-term products at UK Export Finance (UKEF), the Export Credit Guarantee Department, said it was trying to “reach as many SMEs as possible”. He said that UKEF worked with financing partners and brokers, and was not there to compete.
Following the financial crisis, UKEF introduced some short-term products. Currently, Ahmed said, it was involved in areas such as supply credit financing, which included lease payments, and operated an export insurance policy. Ahmed said UKEF was hoping to do more business in the years to come, which would include SME lending.
high street bank support
UK Export Finance (UKEF) partnered with five major banks to support small and medium-sized enterprises (SMEs) involved in exporting.
The deal saw UKEF partner with Barclays, HSBC, Lloyds, RBS Group (RBS and NatWest), and Santander to allow SMEs to access financial support through them.
These smaller companies that support larger exporters will be able to secure finance backed by government through the scheme, as a result of UKEF extending its support through the export supply chain.
International trade secretary Liam Fox said at the time that the scheme would “lift a common barrier to exporting.”
“Providing that finance to suppliers as well as exporters means spreading the benefits of global trade, supporting more jobs and growth for companies large and small,” he said.
The banks will be able to provide export-related finance, such as working capital loans, to SMEs with the guarantee of UKEF. In addition, UKEF will expand its offering by giving direct trade finance to export-supporting suppliers. The scheme will be delivered to banks through a digital platform.
The scheme began in October of that year.
HSBC first uses the SME export scheme
HSBC funded £500k of ventilation equipment for Hull-based supplier North Sea Ventilation (NSV) to Nigeria LNG, an overseas energy company, with a bond guarantee for the deal by UK Export Finance (UKEF).
NSV supplies heating, ventilating, air-conditioning and refrigeration systems for the energy sector. Established in 1992, it has a £9m turnover and 80% of its sales are overseas.
Under the terms of the contract between NSV and HSBC, NSV agreed to provide a 50% advance payment to provide project funding in the early stages of NSV’s manufacturing process.
NSV had to provide an advance payment guarantee through HSBC that was beyond the credit arrangements agreed between HSBC and NSV, so UKEF stepped in to provide the required £250k.
UKEF said in the past, this process would have involved NSV and HSBC submitting another application to UKEF, with UKEF undertaking parallel due diligence and approvals to those HSBC will already have undertaken. This would have added days or even weeks to the process, said UKEF.
This was the first use of UKEF’s partnership with five high street banks to allow smaller exporters to access government-backed trade finance support directly from their bank. This means that, where previously it could take weeks in addition to the banks’ own turnaround times to access this support, it took a matter of seconds as the transaction was eligible.
the first domestic supply chain use
While the export scheme had been operating for two months, a Yorkshire green energy firm became the first to benefit from a UK Export Finance (UKEF) guarantee tailored to domestic supply chains.
The governmental agency backed Wakefield-based Green’s Power, which is both a supplier to exporters and an exporter itself, with an 80% guarantee on bonds issued by the company through HSBC, allowing the bank to relax security requirements.
It was the first such facility for UKEF as previously only companies directly involved in exports were eligible for support from the agency.
the road test is complete
UK Export Finance launched a financial support package for small to medium-sized business (SMEs) in the summer of 2019, following the delay of the proposed Brexit day, 29 March.
Lessors are eyeing the scheme as the government widens potential access to a lucrative lending market with reduced risk for lenders through the guarantee.
The government said it was the first time such an extensive financing package has been made available to small UK businesses exporting to fast-growing emerging markets.
The package includes:
- The Small Deal Initiative, which sees UKEF guaranteeing the loans of potential overseas buyers of British goods to make UK bids more competitive.
- Extending financial support to firms in exporters’ supply chains as well as exporters themselves
- The General Export Facility which allows UKEF to support exporters’ overall working capital requirements, rather than requiring support to be linked to the needs of a specific export.
The government said the latest available data showed that nearly a quarter (23.7%) of UK exports in 2015 was embedded in the exports of other countries.
This more flexible approach will give smaller business greater access to bonds and working capital.