“THIS GOVERNMENT IS DETERMINED TO INCREASE THE NUMBER OF SMALL BUSINESSES THAT EXPORT AND TO MAKE SURE SMALLER COMPANIES HAVE THE SUPPORT THEY NEED TO TAKE ADVANTAGE OF EXPORT OPPORTUNITIES. ECGD HAS AN IMPORTANT ROLE TO PLAY IN THIS... ECGD IS READY AND WILLING TO SUPPORT THEM”

LORD GREEN, UK TRADE MINISTER

W£ LCOME

When the credit crunch hit in 2008, and liquidity requirements escalated, lending from banks became very tough. After all, having seen billions fl y out the door in the shape of bad loans, it was understandable that, in many cases, the fi rst instinct was to take stock and proceed with caution. But turning away requests for credit

from SMEs – seen as riskier bets than larger businesses – at a time when the economy desperately needed growth and jobs, was hardly in the long term interests of the country. Particularly as there are more than

3.5m SMEs in the UK which between them account for 55 per cent of UK jobs and 45 per cent of business turnover. And so, in February, the government and the banks agreed on a more progressive approach called Project Merlin. Barclays, HSBC, RBS, Lloyds Banking

Group and, with respect to lending, Santander, said they were all willing and able to lend £190bn of new credit to business in 2011, up from £179bn actual lending in 2010. If demand exceeded this, they said, they would lend even more. This was good news for SMEs, as £76bn of this new lending capacity was ear-marked for them, a 15 per cent increase on the amount actually lent in 2010 (£66bn).

Indeed, under Project Merlin, lending

to SMEs would become part of the performance metrics of each bank’s chief executive and the senior managers responsible for business lending. In the event, however, lending to

UK SMEs actually fell in the fi rst two months of this year, from £1.06bn in 2010 to £949m this year, according to fi gures from the British Bankers Association. Bankers responded by claiming SMEs

were holding off on investment but John Walker, chairman of the Federation of Small Businesses, said that more than a third of FSB members who asked for more credit were refused. He added: “With the Business Secretary highlighting the need for small businesses to have access to fi nance, we hope that the banks will not place restrictions on lending.”

HERE TO HELP One body in a position to help reverse this trend is the Export Credits Guarantee Department (ECGD). This department is charged with supporting British companies to sell their goods abroad by providing a variety of credit insurance products (see box, page 34). At the time the fi nancial crisis hit,

however, ECGD had been out of one key insurance market for almost 20 years.

“In 1991, the government privatised ECGD’s short-term credit insurance business because it took the view that it could be undertaken successfully in the private market,” says the department’s chief executive Patrick Crawford. “At the time, the market had a ‘whole

turnover policy’, which meant that insurance covered both domestic and overseas trade while ECGD was only authorised to cover overseas trade. The UK led the way by demonstrating that you could withdraw from this market without ill effects and the EU subsequently encouraged other countries to do the same.

BACK IN THE MARKET “With the onset of the 2008-09 downturn it appeared at the time and subsequently that exporters were not getting the degree of support they needed and so the Trade and Investment White Paper, published in February, recommended that insurance offered on capital and semi-capital goods should be extended to all types of exports and on 22 March the department returned to the short-term credit insurance market.” The signifi cance of this is that the

existence of credit insurance gives an assurance to banks that payment risk

springboard: | www.ukti.gov.uk | page 33