What are they?
Overseas market development grants can help fund businesses who want to start exporting to or trading in overseas markets, including market research activities, website localisation and funding to fulfil export orders. Or, for businesses that are ready to export, a capital injection can help businesses win larger export deals and carry out bigger overseas market development projects than if they were relying on their existing financial resources.
In England one major source of overseas market development funding comes from the Department for International Trade’s (DIT) Internationalisation Fund, which offers grants of up to £9,000 match funding for international trade projects, which can be accessed locally via the regional DIT offices.
There are currently plans to expand this support to Wales, Scotland and Northern with the opening of new DIT trade and investment hubs in each of the devolved nations.
Other local business enterprise support groups and sector specific support organisations also offer export and overseas market development grants.
What do they pay for?
Businesses may seek grants to pay towards a range of overseas market development activities to help expand their operations and sales overseas, which are briefly outlined below.
- Market Visits – Carry out trade show visits overseas, exhibit at a trade show or do an independent market visit
- Export Credit Guarantees – Access funding for working capital and capital expenditure to help facilitate and fulfil export contracts and orders
- Export Finance – Access funding to help win export contracts, fulfil orders and ensure overseas payments are covered
- Market Research – Carry out research activities to determine the best overseas markets for your products or services
- IP Advice – Get support for protecting intellectual property in overseas markets
- Translation Services – Get support translating products and services for overseas markets and for doing business overseas
- International Social Media and SEO – Get support for social media and search engine optimisation activities in foreign markets
- Consultancy and International Commercial Services – Get access to consultancy services and other support for international trade activities
What type of alternative funding is available for overseas market development?
If businesses cannot readily access a grant in their sector or region that fits their needs, then the alternative is to take on dedicated export finance loans and guarantees, which can be accessed from both the UK government and private commercial lenders.
This type of support can be split into 2 funding types:
1. Getting started with exporting
There are specialist private export loans for businesses who are looking to export for the first time or reach customers abroad. In many cases, a tailored package is put together to match your specific needs for overseas market development activities, such as market research, website localisation and translation services.
2. Funding to fulfil export orders
The Government provides guarantees on loans to overseas buyers of UK exports via UK Export finance.
UK Export Finance also runs an Export Working Capital Scheme and partially guarantees credit risks for lenders associated with export working capital facilities. This allows UK companies to export on higher value contracts or win more overseas contracts than usual. They also run a Bond Support scheme that can guarantee a UK exporter’s bank up to 80% of a bond value when required for an export contract.
Private commercial lenders can help provide loans via invoice finance that can ensure that cash flow is constantly available rather than waiting for delays in international payments to be received. Other export finance is available to help fulfil international orders, such as bridging loans or export factoring, when experiencing issues with collecting payments from overseas.
What are the pros and cons of a loan vs a grant?
Grants – What are the Pros and Cons?
Advantages of taking a grant
- Grant funding is non repayable and means there is no pressure on business cash flow moving forward compared with repaying loans and their associated interest.
- Grant funding typically targets specific areas of overseas market development projects or specific markets and can allow you to explore and expand into new areas and grow your business internationally.
- If you are awarded a grant from a government backed scheme or enterprise support body, this is considered a vote of confidence from the awarding body in question and means they have backed your business proposition as one that is highly likely to succeed. Details of your receiving an award is often publicised in local press or trade publications and this can be used as a promotional tool to secure new business.
Disadvantages of taking a grant
- Grants usually only offer a percentage of total funding needed for a project, in many cases in the UK match funding of 50% is typical.
- Access to grants is highly competitive. As the money is free you will be competing against other businesses and will need to stand out from the rest of the applicants to be awarded funding.
- Grant funding pots are often restricted to specific sectors or regions for overseas market development projects, so it means if you do not operate within that sector or geographic region then you are not able to access the funding. Some areas and sectors have less funding than others.
- Grants often come with terms and conditions and restrictions, which means you are only allowed to spend the money on what you specifically applied for. Evidence must be provided to show where the money has gone and sometimes the grant is only released as a reimbursement after the project has been completed.
- It is harder for less established SMEs to access money from grants. More often than not a business needs a track record to prove they will make good use of the money and not see the project fail. Some schemes will only accept start-ups with up to 2 years of trading records as evidence.
Loans – What are the Pros and Cons?
Advantages of taking a loan
- Loans will typically cover your entire project costs meaning you will not need to seek additional funding from elsewhere.
- Loan funding is flexible and can be used for any export markets or overseas market activities and there are typically no restrictions on what areas you may spend the money on that would otherwise be restricted if you were using a grant.
- Loans are not limited by sector and means that certain businesses traditionally excluded from grant opportunities can more easily access this type of finance.
- When the government provides an export guarantee it takes on board some of the credit risk of commercial lenders and provides businesses with access to larger lending facilities, than they would otherwise have access to.
Disadvantages of taking a loan
- Whenever you borrow a loan, you must always pay that money back over a period of time with interest (where applicable) and this can put a strain on business cash flow in the future if trading conditions become tough.
- There are some cases where interest rates for less established businesses can be higher due to the greater level of risk and unsecured nature of the loans for those without a proven track record. Businesses with a good relationship with their bank can typically negotiate to get a better interest rate.
- If you are trying to seek a loan when your business is already facing financial difficulties, there is a chance that you may be refused a loan if your business is deemed too high a level of risk. Access to traditional commercial loans can also “dry up” when there are difficult economic conditions taking place across the UK.
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