Export finance for SMEs when credit is tight
The current state of global financial markets means many small to medium enterprises (SMEs) face a number of challenges when looking to grow their export operations.
Slower global growth, coupled with a high Australian dollar, and a lack of bank appetite to finance export deals are some of the factors making it hard for smaller companies to expand into export markets. Coupled with this, SME exporters are finding it difficult to stay competitive in a world of cheap Asian imports and slow growth in traditional export markets.
This situation is not likely to change any time soon, as most analysts agree that, with China expected to continue growing rapidly, the Australian dollar will remain high. This combined with banks becoming more reluctant to lend money presents significant obstacles for many SME exporters seeking finance, as SMEs often lack tangible assets to offer as security, and as a result banks can be reluctant to provide finance.
This has been something that we have seen first-hand at the Export Finance and Insurance Corporation (EFIC). As the government-backed export credit agency, we support Australian businesses to win and finance export, offshore investment and onshore export-related opportunities. This includes SMEs active in the engineering, manufacturing or construction sectors and businesses that are suppliers to onshore mining and mining services companies where the end product is exported.
Some of the exporters we have assisted have great potential, innovative products and incredible business acumen, but their finances have been absolutely stretched getting their businesses to where they are, and the value of their assets is insufficient to enable lenders to provide additional finance.
One such example of this was our assistance for Melbourne-based satellite ground stations designer and manufacturer, Environmental Systems and Services Pty Ltd (ES&S).
ES&S had won a contract with the Polar Research Institute of China to supply, install and commission advanced satellite tracking ground stations in Antarctica, providing the company with a great opportunity to further their reputation in Asia. However, as a new client, the Polar Research Institute of China wanted reassurance that ES&S could fulfil the contract. ES&S needed a solution that enabled them to support their ongoing business while pursuing business opportunities.
EFIC helped ES&S win the contract by providing an advance payment bond and a performance and warranty bond for a total of US$363,000 to Polar Research Institute of China, enabling ES&S to reassure them that they could fulfill their contract successfully. These bonds give a buyer comfort that if an exporter doesn’t perform the contract obligations, an upfront payment from the buyer will be returned and that funds will be available to reduce the buyer’s losses.The deal helped transform ES&S’ business, and since then they’ve gone on to win multiple contracts in the region.
We can also help SMEs with financing in situations where their bank is unable to provide funding for a transaction. In particular, EFIC can consider supporting export-related transactions where many mining and engineering companies operate but which banks may regard as too risky.
That was the case of Lean Field Developments Pty Ltd (Lean Field) which won their first major Australian pipe laying contract with QGC Pty Limited (QGC), a subsidiary of Britain’s BG Energy Holdings Limited, for the installation of gas and water pipelines in Queensland’s Surat Basin.
The Brisbane-based start-up, specialising in servicing the rapidly developing coal seam gas industry in Queensland, is part of the supply chain to the massive Queensland Curtis LNG project.
Like other suppliers, Lean Field was required to provide performance bonds to QGC in support of its contractual obligations under the pipe laying contract. The company also needed additional liquidity for existing and proposed contracts. However, as a company without a long trading history in Australia, it was unable to obtain traditional bank finance for performance bonds.
Lean Field was able to meet its contract obligations with the backing of an EFIC’s bonding line and an export working capital guarantee facility to support a standby loan facility from the company’s bankers.
For more information: visit: www.efic.gov.au