Export finance for SMEs explained

GUEST BLOG: Alternative Business Funding


A vast and often bewildering array of funding choices are available to SMEs. In this Q&A, Alternative Business Funding helps explain one option – export finance.



Q&A with Alternative Business Funding


I’d like to expand overseas but I need a significant amount of money to get started, and a few fellow business owners have already told me don’t even bother asking the local bank.

Well, it’s true, many banks that once helped local businesses get funding for exports no longer do so. And the ones that still work with would-be small exporters can tend to be picky about businesses with no exporting history, which is a bit of a Catch-22 situation.


So are there any banks that would be willing to work with me?

Don’t write off anything, so worth picking up with banks to see if any of them can support with letters of credit or other financing options.

Subsidiaries of foreign banks from the market that you’re targeting may be eager to promote more trade with their country, as well as offering business insights and tips for dealing with regulations that only a local would know.

Local Chambers of Commerce and government organisations, such as UK Trade & Industry and UK Export Finance can help with practical advice and support.

There are also some non-bank lenders happy to get involved, so have a look at our Funder Finder portal




You mentioned “practical advice and support” – can you expand a bit please?

Happily. Some government agencies or organisations, such as UK Export Finance who I mentioned above, work with small businesses by acting as a sort-of middleman between you and the bank. For example, after reviewing your situation, they may provide a partial guarantee for working capital. By doing this, they’re essentially sharing lender risk, which makes banks more comfortable about offering you financing. A partial guarantee might also make them willing to loan you more cash than they would have before, or to open up a larger line of credit.

These organisations can also help you obtain any necessary letters of credit from the bank. By issuing a letter of credit, the bank provides greater security for exporter-to-customer transactions. The letter ensures that the customer will pay the specified amount within a specified timeframe once the exporter has fulfilled the shipment and delivery terms.

Again, our Funder Finder can help you access lenders who might be willing to assist with these options, as well as with another possibility which is factoring.


Factoring… what’s that?

Factoring lets you get some of the value of your export sales before your customers have even paid their invoices.

It works like this: say you’ve shipped an order to a customer overseas, and that customer has now taken delivery of those products. You’re ready to send an invoice, but that doesn’t mean you can expect payment right away, you might have to wait 90 days or more for the cash to arrive.

With factoring, when you invoice your customer, you also send a copy to an invoice finance lender. That organisation then advances you a portion of your total invoice – maybe as much as 90 per cent – within a day or so. You get money much earlier than three months from now, and the invoice finance company chases your customer for payment in full. Once that payment comes through, you get the remaining balance of your invoice.


I like that. But where does the factoring provider make its money?

The invoice finance lender will charge a fee for its services and usually takes that amount out of the advance it pays you. So, yes, the service will cost you but you’ll be able to access other services for that fee as well. Organisations that offer factoring can also take care of your collections and sales ledger management and usually provide a way for you to keep track of everything online.


Any other options?

Not necessarily the most attractive, neither is it a ‘funding type’, but if you have already exported the goods and your customer has received them, but payment is not yet due, it may be worth negotiating a lower price in return for quick payment. Work out the benefits and implications though, before you start such negotiations!


To learn more about funding options available to you, follow the traffic lights below





Please note:

(i) The author is an external contributor and does not represent or act on behalf of Godi Financial;

(ii) Any views, advice or other content set out in this article are those of the author and are presented for discussion and information only and should not be considered to be an endorsement by Godi;

(iii) Readers should not act or refrain from acting on the basis of the content of the article (none of which constitutes advice from Godi) without first taking proper legal and/or investment advice specific to their circumstances.

Receive our newsletters for all the latest market news