Export Enterprise Finance Guarantee
The Export Enterprise Finance Guarantee (ExEFG) facilitates the provision of commercial export finance facilities to viable small and medium sized enterprises (SMEs) which lack the security necessary to obtain such facilities. ExEFG is a self-financing scheme through which the lender is provided with a guarantee for which the borrower pays a premium. All decisions on the use or otherwise of ExEFG rest with the participating lenders.
- ExEFG is a new loan guarantee scheme, based on EFG, but aimed specifically at viable SMEs seeking short term export finance facilities.
- ExEFG is available to viable SMEs that lack the security to obtain normal commercial export facilities.
- ExEFG can enable accredited lenders to provide export finance facilities of between £25,001 and £1 million for terms of up to 2 years.
- ExEFG covers finance for export purposes that are not permitted under EFG.
- The scheme provides accredited lenders with partial guarantees (60%) to facilitate this lending, subject to a cap on total claims arising from each lender’s ExEFG portfolio.
- An upfront premium of 3% per annum (pro-rata) in addition to any fees or charges due to the lender.
- Decisions on the use of ExEFG, eligibility and lending terms in individual cases rest with the lender.
ExEFG will operate on a pilot basis from 28 April 2011. It will be reviewed after 6 months.
Unlike EFG, which is a Government subsidised aid scheme operating under the de minimis (EU State Aid) regulations and thus cannot be used to aid export activities, ExEFG operates as a commercial scheme on a non-aid basis.
ExEFG Eligibility Criteria
ExEFG supports lending to viable SMEs, with an annual turnover of up to £25 million, seeking export finance facilities of between £25,001 and £1 million. It is available to businesses in all sectors.
ExEFG is used by lenders when addressing the export finance requirements of viable businesses which although they do not have sufficient security, can demonstrate to the lender that they have capacity to service and ultimately repay the facility in full.
Types of ExEFG Facilities Available
ExEFG backed facilities are available for periods of less than two years, in increments of three months.
Types of export finance products eligible to be guaranteed include:
- Trade Loans (including Letters of Credit, Export Collections, pre-export finance / import credit facilities, export invoice finance, investment term loans)
- Export Bonds, Guarantees & Indemnities
- Other Contingent Liabilities (including FX hedging)
- Any combination of the above via Trade Multi-Option Facility.
N.B. Overdrafts, including trade related overdrafts are ineligible
Purposes for which that finance may be utilised include:
- Working capital to fund the purchase of materials etc in order to manufacture goods for sale internationally
- Depositing of performance bonds and similar instruments in order to satisfy requirements of an overseas customer
- Exporting of overseas sourced good produced to the design / specification of the business, even if those goods are shipped directly to a third country and do not originate from the UK or touch UK shores
- Importing of goods for subsequent re-export following value added activity by the business in the UK
- Promotional and related activities focused on increasing exports, such as an advertising campaign outside the UK, the establishment of a representative office outside the UK, or the appointment of an overseas agent; or the setting up of a distribution network overseas
An ExEFG accredited lender may not necessarily offer certain types of facilities, or for certain purposes, if to do so would be incompatible with their normal export lending practices.
The following lenders have agreed to participate in the scheme initially:
- Lloyds TSB & Bank of Scotland
- Royal Bank of Scotland and NatWest
Further lenders are expected to join in due course.
Businesses seeking export finance that believe they may fit the ExEFG eligibility criteria should approach one or more of the participating lenders.
The lender will typically assess the business against their normal commercial lending criteria for instance with regard to the viability of the business, the ability to service the facility, and the availability of existing security, in order to determine whether they wish to lend.
There is no automatic entitlement to receive a guaranteed loan and nor is there any pre-qualification process for it. Decision-making on individual facilities is fully delegated to participating lenders and integrated with the commercial decision to lend. BIS plays no role in the application or decision making process.
ExEFG Scheme Guarantee & Premium
By providing lenders with a guarantee for 60% of the loan value, the scheme is facilitating lending that would otherwise not be available. ExEFG is intended to support lending to businesses that can service and ultimately repay the facility in full. The guarantee is provided to the lender, and does not provide insurance to the borrower in case of default.
The borrower pays a premium which is a contribution towards the total cost of the guarantee scheme, which operates on a commercial basis. This premium is equivalent to three per cent per annum (pro-rata) and is collected as a single upfront payment when the facility is drawn, and is not refundable. This is because the scheme is self-financing and has been calculated on the basis that premiums cover all the Government’s costs. However, it is not an insurance premium. Interest rates and any other fees and charges made by a lender are a commercial matter for the lender concerned.
Personal Guarantees / Security
ExEFG rules on the treatment of security mirror those of EFG - see Section 4 of the EFG Guidance.
ExEFG allows lenders to take security, including personal guarantees, in connection with an ExEFG backed facility. In looking to take that security the lender is required to apply their normal commercial policies in determining the extent and value of security available.
The practice of taking personal guarantees from business owners and others associated with a business is an established mechanism for ensuring a degree of personal commitment to the repayment of the loan by the business and, in ExEFG, this means that there is a three-way sharing of risk between borrower, lender and the Government.
The exception from normal commercial practice is that lenders are not permitted to take a direct charge over a principal private residence for a new ExEFG backed facility. However, the ExEFG rules only apply to any loan or facility guaranteed under ExEFG. It does not apply to any non-ExEFG lending which may already be in place or provided alongside the ExEFG facility or subsequently.
It is right the risk is shared by the lender and the borrower, as it would be for any commercial facility. The taxpayers’ liability to defaults is capped. This acts to ensure commercial rigour is applied in relation to lending decisions and that undue risk and cost is not placed on the taxpayer.
ExEFG rules on defaults and recoveries mirror those of EFG - see Section 5 of the EFG Guidance.
Under ExEFG, the scheme guarantees to repay 60% of the outstanding amount of the ExEFG facility to the lender, net of any recoveries, in the event that the borrower fails to repay the facility. The borrower remains liable for 100% of the facility and not just the 40% not covered by the scheme guarantee. The purpose of the scheme guarantee is to enable the borrower to obtain finance which the lender would not otherwise be willing to provide. ExEFG does not provide protection to the borrower in case of default.
As ExEFG is intended to support loans to businesses that can ultimately repay the loan in full,. Therefore, in the event that borrower defaults on the loan repayments, the lender is entitled to pursue the borrower for full repayment of the facility as they would any outstanding debt.
ExEFG is not entirely ‘risk free’ for the lender even where the facility is secured through borrower and scheme guarantees. Lender claims on the scheme guarantee are subject to a cap on total claims arising from a lender’s ExEFG portfolio. This cap helps ensure that businesses receiving ExEFG backed loans are viable, it helps supports appropriate lending, and limits exposure to the taxpayer.
ExEFG Further help
The delivery of ExEFG, including the decision on whether or not it is appropriate to use it in connection with any specific lending transaction, is fully delegated to the participating lenders. Capital for Enterprise Limited manages the operation of ExEFG on behalf of the participating lenders and the Government.
Further details of the Enterprise Finance Guarantee (EFG) are available here. A summary of the EFG and ExEFG parameters is available here.
The Export Credit Guarantee Department (ECGD) is the UK Export Credit Agency (ECA) and the main provider of Government support to exporters. Details of ECGD schemes are on the ECGD website.
General advice for business seeking to export is available from the UK Trade & Investment (UKTI) website.
Individuals within a participating lender should contact their designated internal ExEFG expert who can obtain further information from CfEL if necessary.
All decisions relating to the use or otherwise of ExEFG in individual cases are fully delegated to the participating lenders. Businesses are advised to approach one or more of the participating lenders to discuss their borrowing needs. If a business which has received an ExEFG backed loan subsequently has any issues with their loan, including issues relating to premium collection or alterations to their repayment profile, then they should raise them with their lender and not with BIS or CfEL.
Please note that neither BIS nor CfEL can advise on individual eligibility queries. Nor will BIS or CfEL intervene in the commercial relationship between borrower and lender in the event of disputes.
Customers dissatisfied with the experience of dealing with their bank should raise their concerns initially through the bank’s own customer complaints procedure. If the matter is not resolved businesses with a turnover of under €2 million and fewer than ten employees have the option of taking their complaint to the Financial Ombudsman Service or on 0845 080 1800. Businesses may also wish to seek legal advice if they are involved in a contractual dispute.