Insight & Analysis

Export finance: SMEs left out in cold

Published: Nov 2020

More needs to be done to support SME exports says the Federation of Small Businesses’ James Sibley who contributed to the recent Public Accounts Committee report.

Male hawfinch perched on a branch in snow

Government efforts to boost UK trade in the wake of Brexit and the pandemic aren’t filtering through to SMEs. A recent report from the Public Accounts Committee (PAC) which found the Department of International Trade and UK Export Finance lacking in their support for companies seeking to boost exports, is no surprise to small businesses. “My experience of applying for finance through UKEF was quite negative,” said one treasurer at an advanced manufacturing business. “Their current products seem to be orientated towards medium and larger businesses since they rely on the five main banks, whose interests and business models don’t seem to make it economical or interesting to support SMEs like my own.”

“We weren’t too surprised by the PAC report,” agrees James Sibley, Head of International Affairs at the Federation of Small Businesses, who oversaw the FSB’s submission to PAC’s initial enquiry. “Their interest is in making sure public money is being spent in an efficient way so we would expect them to be quite critical.” Around a third of FSB members are engaged in international trade and many of them find DIT and UKEF support difficult to access, he says.

Export finance

One of the key areas of frustration is small businesses’ inability to access UKEF export finance, whereby companies can win export contracts by providing attractive financing terms to their buyers. “Our members have been disappointed by the level of funding they receive,” says Sibley, who says SMEs feel that much of UKEF’s limited resources goes to larger companies, or subsidiaries of larger companies which he argues need the support less. “It’s tough for SMEs with a reasonable export plan that get turned down, yet they see UKEF supporting larger businesses.” None more so since SMEs typically find it more difficult to access bank export and trade finance products, he adds. “If you are going to use public money to support export, it’s probably best placed supporting those less likely to access commercial offering.”

It’s why the FSB has now asked UKEF to introduce targets for the number of SMEs it will support. “We have argued for additional target numbers for UKEF to support micro and small businesses with under ten, and 50 employees, respectively.”

The FSB is also calling for greater simplicity. Rather than filling out complex export finance applications, the industry body is pushing for SMEs to be able to apply for a new type of UKEF loan structured like the governments’ bounce-back loans. “Ideally, smaller firms would benefit from an export finance equivalent of a Bounce Back Loan, with a quick and simple approval process or tax relief for money spent on export activities,” he says.

Despite the perception that UKEF involvement makes it easier to access bank finance, the FSB also notes SME loan applications with UKEF guarantees are still declined. “It’s a shame as you’d think UKEF involvement would make it easier to tap bank finance and that it would be more likely your application would be approved. SMEs also say the application process is so long-winded, it’s difficult to do it right.”

Skills shortage

Along with challenges to accessing UKEF finance, Sibley notes small businesses have also been battling poor skills amongst the government’s international trade advisors (ITAs). “ITAs are a kind of local area rep for DIT, and businesses first contact with DIT. They will offer advice on what overseas markets a business might be able to expand into, whether their product is suitable for export and if they can access finance. Yet we’ve found ITAs’ quality and experience can vary and there is a regional variance in terms of the quality of support.” As for the government’s promise of new ITAs across UK regions, he is also circumspect. “It was never the number but the quality of support on offer.”

The FSB would also like a greater linkage between innovation funding and export finance. At present, firms can easily access innovation funding, but are often unsuccessful in accessing further funds to support commercialisation or internationalisation of their products or services. Other countries, such as Finland or the Netherlands, have combined their innovation and trade agencies for this reason and the UK should consider doing the same.

Elsewhere, Sibley urges the government to learn lessons from support schemes in other countries. For example, the Market Entry Programme in Germany and the exhibitions and conventions programme run by the Korean Trade-Investment Promotion Agency in South Korea provide considerable support to German and South Korean SMEs. The UK government’s new £38m Internationalisation Fund to help SMEs could also provide much needed support, he concludes. “This could really help.”

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