The rising Australian dollar has not deterred small businesses from exporting, according to new research.
The Export Finance and Insurance Corporation, the Federal Government’s export credit agency, says there has been a rise in both volume and transactions in its bond products for SMEs, particularly in the manufacturing, construction and IT sectors.
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The agency says it signed $85 million in bonds or other working capital facilities in the 2010 financial year.
It has already matched that figure for the 2011 financial year, with the amount tipped to reach $120 million by June 30.
Andrea Goveaart, head of SME business at EFIC, says innovation often enables Australian SMEs to win or retain contracts despite the high Australian dollar.
“The exchange rate is a factor… But often Australian SMEs aren’t competing on price anyway; it is rather on the basis of technology, service or quality,” Goveaart says.
According to Goveaart, EFIC has a unique approach to financial institutions when it comes to supporting exporters.
She says EFIC is more concerned about whether an SME has the capacity to perform the contract rather than focusing on its financial position.
“We want to know if it has the required technical skill; that’s what we look at,” Goveaart says.
Goveaart says there is a variety of EFIC bonds available to SMEs, including an advance payment bond whereby any overseas client makes an upfront payment that might help the business to fulfill the contract.
An advance payment bond also ensures the money can be returned to the foreign buyer if the Australian business fails to complete the contract.
Another type of EFIC bond available to SMEs is warranty bonds, which ensure any warranty obligations under the deal are adhered to by the small business.
The Australia-US free trade agreement offers opportunities to local SMEs, but Goveaart says US deals can cause difficulties.
According to Goveaart, suppliers often have to furnish a surety bond for the full amount of the contract, from a registered US bond issuer, as security for performance.
According to an EFIC spokesperson, it’s a “whole different ballgame” in the US as businesses are often required to put up 100% of the contract.
“However, we have a relationship with the bond provider in the US and can often ask for less than 100% security, which is really important for small businesses as it is less of drain on their cash… Our whole thing is to keep trading going; to keep making those exports happen,” she says.
The spokesperson says SMEs must ensure they consider the government grants and tax concessions available to them prior to exporting.
“Also, keep talking to your bank and if you’re looking for more security, ask who else can help,” she says.