Export Finance

Export finance (also known as trade finance) is a specialised type of finance that supports UK businesses selling products and services overseas.

Exporting goods often involves significant upfront costs, which can place pressure on your business’s finances and working capital. Export finance is designed to reduce this strain by sharing some of the risks associated with international trade.

How does export finance work?

If you’re planning to sell your product or service internationally, there are various types of export finance available to support your efforts. These include:

• letter of credit: a letter of credit guarantees that you will receive full and timely payment as agreed in the contract. It reduces risks by ensuring the buyer's bank covers any payment shortfall if the buyer cannot pay in full. 
• bond or guarantee: many international customers may require your bank to issue a bond or guarantee as part of the contract terms. This provides added security for the customer, allowing them to claim the bond from the bank if you fail to meet your contractual obligations. Common types of bonds include Advance Payment Bonds, Performance Bonds and Warranty Bonds.
• Export credit insurance: export insurance, often referred to as export credit insurance, safeguards UK exporters against the risk of non-payment by their overseas buyers. Non-payment can occur for various reasons, such as the buyer's insolvency or political and economic disruptions in the buyer’s country. 

By exploring these options, businesses can better manage the financial aspects of exporting and position themselves for success in global markets.

What are the benefits?

Export finance is designed to boost exporting for any business that sells their products or services overseas. The potential benefits include:

• reduced risk: using an export finance product like export insurance can greatly reduce the impact of non-payment by an overseas buyer. 
• diversified revenue streams: export finance can help your business expand, reaching new customers, and generating additional revenue.
• cash flow: by speeding up the time between delivering a product or service to a customer and receiving payment, export finance can boost the cash flow of a business.

What are the potential drawbacks?

Like all finance types, export finance can have its own share of potential drawbacks for a business, including:

• eligibility: new or early-stage businesses may struggle to access export finance due to the need for assets and trading history as a condition of lending
• credit history: businesses with poor credit history may find it more difficult to access export finance
• costs: due to the fees and interest charged, export finance can prove expensive
• complexity: export finance can often require a substantial amount of time to arrange, and may even require the involvement of an external expert to develop a successful application.

How do I access export finance?

When looking for export finance, it’s often best to start by approaching your bank. Since your bank is familiar with your business, they can provide tailored advice and present you with available options.

If your bank isn’t able to meet your needs, consider exploring other banks or lenders, especially those with expertise in export finance.

Should neither your bank nor other lenders be able to assist, you might qualify for government-backed finance or insurance from UK Export Finance, which supports businesses involved in exporting activities.