Small exporters are in danger of missing out because Government credit guarantee limits have been set too high, a specialist has warned.
Johnathan Dudley, managing partner at the Midlands office of national audit, tax and advisory firm Crowe Clark Whitehill, and UK Head of Manufacturing, said that SMEs need to be nurtured.
The UK export credit guarantee system only kicks in at £5 million – the minimum qualifying figure.
“For many SMEs that is a very substantial piece of business,” said Mr Dudley.
“They are more likely to be doing orders worth £250,000 up to £1 million. Therefore, they miss out the whole export guarantee system, having to take any default on the nose.
“This seems particularly unfair and is a great disincentive. Few SMEs will risk going outside the home market anyway and we need to encourage the braver ones in every way we can.
“The West Midlands in particular is full of small and medium sized enterprises and it is vital for the regional economy that they get help.”
Under the present system UK Export Finance provides a guarantee to a bank that makes a loan to an overseas buyer to finance the purchase of capital goods and/or services, worth at least £5 million from an exporter carrying on business in the UK.
The benefits are that the exporter is paid as though it has a cash contract; the buyer or borrower has time to pay over a number of years and can borrow at fixed or floating rates; and the lending bank receives a guarantee for full repayment of the loan plus interest.
“There have been a lot of problems over the years,” said Mr Dudley. “Yet in principle it is a good system.
“The Government is desperate to promote manufacturing and exports, but in my opinion we are still not getting it right.”
The maximum amount that can be made available under a loan is 85 per cent of the contract value. A minimum of 15 per cent of the contract value must be paid directly to the exporter by the buyer before the loan starts to be repaid.