Government Assistance to Industry - Business, Innovation and Skills Committee Contents


Further written evidence from EAMA

ORAL EVIDENCE—TUESDAY 30 NOVEMBER


FURTHER COMMENT ON 268

Is BIS doing enough to help SME exporters?

  Trade shows are vitally important for companies selling capital goods overseas. Prospects need to have seen the goods and get to know and trust the company behind the product before they will spend £300,000 or more on a new piece of machinery for their plant. The process can therefore often take time as commitment to the market as well as technical competence have to be demonstrated.

  Trade shows and missions are therefore vitally important for our members serving exporters.

  There is a strong belief amongst these Trade Associations that budgetary cutbacks risk damaging UK participation and representation in trade shows around the world. In a business environment in which the ability to project powerful messages matters, there is a real danger that we will be muzzling British exporters.

  BIS needs to do more to ensure that UK participation doesn't compare unfavourably with our major competitors. That doesn't necessarily mean having contingents of a similar size. But we do need to show that the UK has the depth of supply chain and manufacturing to match others. Key sector events are one route to achieving this and may be under threat of further budgetary cuts.

ADDITIONAL EVIDENCE TO QUESTION 271

The Enterprise Finance Guarantee Scheme

  In practice the Enterprise Finance Guarantee (EFG) has become a mechanism to help firms that have exhausted their personal guarantees in the search for finance. What's really needed is a half-way house, where the banks can obtain the sorts of commitment they need to minimise default risk and businessmen seeking finance aren't required to put everything on the line, including the family's home.

  Despite its name, the EFG isn't for mainstream financing. But at one point it may have been mistakenly considered such.

  For example, in mechanical engineering it is standard practice for a customer to pay a 25-30% deposit to confirm their order. It happens all over Europe and in the USA. It helps with cash flow. In return for the deposit, the customer expects to receive a guarantee, normally from a bank, that they will receive the machine they have ordered or their money back.

  If the company making the machine is any good, this is all very low risk, for which the banks make a charge.

  Whereas French, German and US governments have bond support facilities that enable banks to provide the guarantee for a small charge, UK banks take the deposit as security or allocate it against the company's overdraft and still charge for the guarantee.

  The result is that the manufacturer is no better off for having received the deposit in the first place. There's no benefit to company cash flow.

  In the recession some banks doubled the interest they charge and increased their administration charges. Others placed ceilings on the total amount they would guarantee for any one manufacturer, effectively slapping a cap on the size of the firm's order book, or forcing them to forego the benefit of the deposit, which opens them up to increased risk.

  Faced with so much uncertainty, some companies reported trying to use the Enterprise Finance Guarantee Scheme with significant support from the Department for Business.

  However, despite its conception to help dynamic companies with their cash flow, the terms specifically excluded support for "individual export orders". If a firm is over 70% export, in practice all their activity is excluded.

  Apparently such difficulties do not arise in other countries, because they run a "Bond Support Scheme" with government backing, so that any orders where the deposit may be too big to be handled by the usual channels, can be covered competitively.

  According to a benchmarking report produced by the British Exporters Association (BExA), Export Credit Agencies April 2010, covering 38 countries, 32 offer bond support including Australia, Canada, China, France Germany, Italy, the Netherlands Spain and the USA. In fact within the OECD, the UK appears to be in a very small minority not offering such support.

17 December 2010






 
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