Exports are a vital driver of growth in the UK, supporting the livelihoods of hundreds of thousands of workers and boosting the wider economy. Every day the financial services industry helps businesses with international trade, by providing working capital and financing capital goods, helping customers to identify export and inward investment opportunities, making international payments and offering pre and post-shipment financing.
One of the key components of this package of support is government-backed finance. UK Export Finance (UKEF) works with over 100 private credit insurers and lenders to help UK companies access export finance, enabling them to win international business via guarantees, export insurance and loans for export activities.
However, up until now, UKEF support had to be linked to a specific export contract, meaning borrowers often needed to make multiple requests for guarantees and get multiple individual approvals. It meant that UKEF often could not back potential customers – even if they were experienced exporters – with the financing they needed to invest in new technologies, scale up their sales overseas or secure capital to win more business.
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UK Finance, the collective voice for the banking and finance industry, has been working closely with UKEF to change this. Working with our international bank members that provide export finance, we have helped design a new product, the new Export Development Guarantee (EDG). This will enable eligible exporters to benefit from UKEF support for high-value loan facilities provided by lenders which is non-contract specific.
An example of this in action is in UKEF’s support for Ford Britain. Through a £625 million loan facility guaranteed under UKEF’s EDG, Ford is able to base its global innovation centre here in the UK, securing local jobs and boosting the whole UK supply chain.
Under the EDG, UKEF can provide partial guarantees covering up to 80 per cent of the risk to lenders for a maximum repayment period of up to five years. While the minimum loan value under the EDG is £25 million, the average amount is expected to be somewhere between £100 million and £500 million. We are currently working with UKEF on developing a scheme to support export-related working capital facilities for small and medium-sized businesses that is also non-contract specific.
How does the Export Guarantee work – a step by step guide
- A UK exporter seeks general support for its business from a Lender
- UKEF provides a partial guarantee of up to 80%
- Guaranteed lender makes advances under the facility to the exporter
- The UK exporter pays interest on the facility and repays the principal.
- Guaranteed lender pays UKEF a portion of the interest received from the exporter
- In the event of non-payment: In the event of non-repayment by the UK exporter, the lender seeks payment from UKEF
This is a fundamental change to the way that UKEF offers its support to companies with high-value exports, and we are delighted to have played a role in shaping it. With the country now focusing on the economic recovery following the impact of the COVID-19 pandemic, the EDG will help build export growth well into the future.