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Why UK Businesses Need to Trade Internationally – The Key Benefits of International Trade for UK SMEs

The Key Benefits of International Trade for UK SMEs – As a business, you’re always trying to find and break new grounds to gain that competitive edge. But, have you considered going global yet?

The history of the world as we know it has been shaped by a complex concoction of ideas, events and people.

But there has always been a strong, undeniable driving force behind much of the development we’ve seen in the post-industrial revolution era: natural resources. The quest for the very best of everything that our planet has to offer has built, transformed and even destroyed civilisations, and international trade is a vibrant reminder of that fact.

Today, no country can afford to sit back and not engage in international trade. Many of Western economic policies stem directly from trade-related reasons and thousands if not tens of thousands of companies in the UK keep the wheel of our international trade turning.

But while all this happens, what does international trade mean for you and your business?

In the more-connected-than-ever world, you can’t possibly afford to ignore the possibilities that exist around the world. If you’ve been apprehensive about the seemingly complex international trade puzzle, let us break some things down for you.

Before that, let’s take stock of where things stand from an SME point of view.

More and More SMEs Are Trading Internationally

Thanks to consistent efforts of successive governments, international trade has seen some promising numbers in the last few years.

Although there has been a marked drop in overall exports in the past two years due to puzzling developments and speculations around Brexit, the overall number of SMEs exporting internationally has increased. The latest figures released by the government indicate that the number of SMEs exporting products and services internationally rose in 2017 by 6.6%.

“With more and more SMEs engaging in international trade (especially exports), it’s clear that it’s indeed possible even for a small business without millions of pounds in cash reserves to expand their operations, customer base and influence around the world with success.”

At 235,000 and counting, the SMEs trading internationally account nearly for 10% of all SMEs in the UK.

Benefits of International Trade for UK SMEs

While there can be cited dozens of benefits of international trade, here are the important ones that UK SMEs need to know:

A. International Trade Allows for the Diversification of Operations

It’s probably the most apparent benefit of going global for SMEs.

As a business trading internationally, you can easily diversify many of your business operations. This includes the two end-points of business – paying customers and suppliers whom you pay. You can access diverse technologies, market opportunities, natural resources and human resources, and make them all work in your favour.

B. Diverse Operations = Better Risk Tolerance

Risk tolerance is a business metric that defines how much of a leeway a business can have against various risks – from market events to uncontrollables like natural calamities.

When you start trading globally, your business automatically spreads much of its risks over a wider geographic area. Of course, this comes with additional trading risks, but they usually offset themselves with associated rewards. Essentially, businesses that import/export can tolerate negative events without sustaining much damage, as opposed to domestic businesses that can suffer irreversible damage.

For example, an unfortunate event like an earthquake can bring your manufacturing operations and domestic demand to a standstill. But if you export the manufactured goods internationally, you can still move the surplus inventory off your warehouses, maintaining the incomings relatively unscathed.

C. Trading Internationally Opens Up New Channels of Revenue

It’s no secret that you can’t have every type of demand in a single market. If you trade only domestically, your operations will always be limited to a certain type of demand. Any fluctuations in those demand forces will have a direct impact on the revenue.

Alternatively, when you trade globally, you can add multiple, previously-untapped revenue channels to your operations. This is just an extension of the previous risk tolerance argument we made, but it’s definitely one of the highlights UK SMEs need to think about.

D. International Trade Isn’t Crippled By Finance Bottlenecks Anymore

The second half of the 20th century was marked by epochal turns. The World War II started a chain of events that was propagated further by the Cold War, followed by the oil-centric upheavals in the Middle East. All these events meant one thing – the money gradually dried up from all international trade that wasn’t related to oil.

Lenders were unwilling to deal with foreign suppliers or banks, making letters of credit an irrelevant option for businesses. Today, we are glad to report, this isn’t the case.

Even a small business with limited capital can easily have letters of credit issued to the supplier’s bank without any problems. Thanks to the good perception UK businesses have in foreign markets, there are fewer things to worry about today than ever. If you’re exporting goods or services, you can just as easily arrange for flexible finance packages that keep the operations running smoothly.

When it comes to trade finance, Commercial Finance Network is an automatic choice for hundreds of UK SMEs. Being an industry-leading whole of market broker, we help UK SMEs access a diverse panel of lenders who bring on board decades of global trade experience. High acceptance rates, customised loan terms and fast approvals are just some of the features that make our trade finance services popular among businesses across the UK.

E. You Can Easily Beat Domestic Competition

Trading internationally means trading on a bigger and wider canvas. By going global, you can make sure that your business has an edge over domestic competitors.

F. A New Lease of Life for the Service Industry

Service provider businesses are among the fastest growing businesses of the 21st century, thanks largely to the internet effect. Given that the UK is one of the most important financial markets of the world, it’s no wonder that UK service providers – especially in the technology, financial and education sectors – have been reaping the rewards of trading internationally.

If you run a service business, you can – at relatively lower cost spreads – access and seize foreign markets.

G. Trading Internationally Promotes Innovation

Innovations isn’t just a buzz word – it’s the primary catalyst for business growth today.

If your business operates in tech, manufacturing or financial sectors, you know this first-hand. Innovation in a far-away market can often have an tearaway effect on your local performance. In such times, it pays to be connected to the world at large – something trading internationally lets you do.

Explore the World of Opportunities With Commercial Finance Network

Whether it’s sourcing better, cheaper equipment from overseas suppliers or exporting goods/services to foreign customers, every well-thought-out international trade move can be a game changer for your business.

At Commercial Finance Network, we help UK SMEs realise their global trading goals with robust, flexible and customised trade finance solutions – from affordable import-export finance to universal letters of credit. Let us worry about mediating with foreign banks and suppliers while you focus on your business.

To request a quote or talk to our trade finance experts, click here.

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London is one of the top 15 cities in the UK to start a small business

Research by card payment solution’s provider Paymentsense reveal the top 15 best cities in the UK to start a business.

Starting a business can be an exciting endeavour, but getting through the first five years is challenging. The cost of rent, consumer demand, beating the competition, and keeping your cash flowing are often tricky things for SMEs to juggle.

Based on factors including business survival rates, weekly salary, average rent, population, and the number of employed adults in the area, they worked out which UK cities offer the best environment for prospective SMEs. If you’re thinking of embarking on a new venture this year, take a look at the below 15 places for starting a business.

15. London

It’s probably no surprise that the capital of the UK, which is often considered to be a leading global city, made the list. London accounts for roughly 30% of UK GDP and is a major location for finance, both nationally and internationally. As well as this, it thrives in the media, technology and tourism sectors.

5-year start-up survival rate: 39.3%
Average weekly pay for full-time workers: £713.20
Average monthly cost to rent a 1-bed city centre apartment: £1,705.35
Population: 7,556,900
Number of employed adults: 3,817,203
Money available per week: £2,722,429,179.60
Index score out of 5: 1.36

14. Glasgow

This city has Scotland’s largest economy and the third highest GDP per capita out of all the UK’s cities. Glasgow has seen growth in its communications, biosciences, healthcare, retail, finance, and creative industries. Tourism is also strong in Glasgow, as it’s one of the most popular holiday destinations in Scotland.

5-year start-up survival rate: 36.1%
Average weekly pay for full-time workers: £573.60
Average monthly cost to rent a 1-bed city centre apartment: £624.75
Population: 591,620
Number of employed adults: 280,700
Money available per week: £161,009,520
Index score out of 5: 1.54

13. Manchester

A textile manufacturing boom made Manchester the world’s first industrialised city – it’s also the revolutionary place where scientists first split the atom and graphene was produced. Nowadays, as well as its continued involvement in science and engineering, Manchester is known for its media, culture, music scene, and sports.

5-year start-up survival rate: 37.5%
Average weekly pay for full-time workers: £555.90
Average monthly cost to rent a 1-bed city centre apartment: £746.09
Population: 395,515
Number of employed adults: 194,093
Money available per week: £107,896,298.70
Index score out of 5: 1.66

12. Birmingham 

The UK’s so-called ‘second city’ has a long history as a centre for manufacturing and engineering, although the last few decades have seen the services sector take over the local economy. Public administration, health and education are major employers in the city and it’s the third biggest financial centre in the UK. Birmingham also attracts a lot of conference and exhibition trade, thanks to major facilities like the NEC and the ICC.

5-year start-up survival rate: 39.7%
Average weekly pay for full-time workers: £584.10
Average monthly cost to rent a 1-bed city centre apartment: £752.62
Population: 984,333
Number of employed adults: 400,679
Money available per week: £234,036,603.90
Index score out of 5: 1.83

11. Liverpool

Made famous as the birthplace of The Beatles and home of the Merseybeat genre, Liverpool is one of the most visited cities in the UK. Tourism and leisure are big contributors to the city’s economy, as is the services sector. The future looks promising for Liverpool, too, as the economy has been on the up since the mid-1990s.

5-year start-up survival rate: 38%
Average weekly pay for full-time workers: £544.30
Average monthly cost to rent a 1-bed city centre apartment: £656.02
Population: 864,122
Number of employed adults: 182,270
Money available per week: £99,209,561
Index score out of 5: 1.83

10. Edinburgh 

The history and culture of the Scottish capital, as well as the Edinburgh International Festival and the Fringe, have made it the UK’s second most popular city break. Scientific research, higher education, and financial services also account for a significant portion of Edinburgh’s local economy.

5-year start-up survival rate: 42.9%
Average weekly pay for full-time workers: £613.30
Average monthly cost to rent a 1-bed city centre apartment: £763.63
Population: 464,990
Number of employed adults: 272,000
Money available per week: £166,817,600
Index score out of 5: 2.02

9.Coventry 

Car manufacture and ribbon making are what Coventry is historically associated with. These days, although the automotive sector is still a big part of Coventry’s economy, the city has more involvement in areas such as finance, leisure, logistics, research, and the creative industries.

5-year start-up survival rate: 42.2%
Average weekly pay for full-time workers: £595.10
Average monthly cost to rent a 1-bed city centre apartment: £616.07
Population: 359,262
Number of employed adults: 128,764
Money available per week: £76,627,456.40
Index score out of 5: 2.1

8. Leeds 

As well as being one of the UK’s largest legal and financial centres, Leeds has one of the most mixed economies in the UK. Engineering, publishing, chemicals, medical technology, and food and drink are the most major sectors in the city. However, it also has strong retail, leisure, construction, creative, and digital industries.

5-year start-up survival rate: 41.9%
Average weekly pay for full-time workers: £551.90
Average monthly cost to rent a 1-bed city centre apartment: £659.21
Population: 455,123
Number of employed adults: 333,333
Money available per week: £183,966,482.70
Index score out of 5: 2.28

7. Cardiff 

The Welsh capital is a popular destination for visitors, which is why its retail, leisure, and tourism sectors account for a large portion of its economy. Cardiff is also Wales’s main business and financial services centre and it has a thriving media sector.

5-year start-up survival rate: 42%
Average weekly pay for full-time workers: £529.80
Average monthly cost to rent a 1-bed city centre apartment: £694.12
Population: 447,287
Number of employed adults: 147,955
Money available per week: £78,386,559
Index score out of 5: 2.31

6. Stoke on Trent 

Affectionately known as The Potteries, Stoke-on-Trent has a long history as the home of England’s ceramics industry. Although much of the production has moved out of the city, many pottery firms remain. Tours of the factories for these goods help to boost tourism in the city, as does the canal network.

5-year start-up survival rate: 39.3%
Average weekly pay for full-time workers: £497.10
Average monthly cost to rent a 1-bed city centre apartment: £427.78
Population: 372,775
Number of employed adults: 103,269
Money available per week: £51,335,019.90
Index score out of 5: 2.35

5. Bristol 

Creative media, electronics, and aerospace are the main industries that hold up Bristol’s economy. It’s a popular tourist destination, which is likely helped by its artistic and sporting influence. Plus, the government named it a science city in 2005 because of its contribution to innovation.

5-year start-up survival rate: 44.8%
Average weekly pay for full-time workers: £565.70
Average monthly cost to rent a 1-bed city centre apartment: £828.75
Population: 617,280
Number of employed adults: 197,915
Money available per week: £111,960,515.60
Index score out of 5: 2.38

4. Leicester 

Textiles and shoes were the bread and butter of Leicester’s economy in days gone by. Recent years have seen a resurgence in these areas, as some textile manufacturers have moved back to the city. Much of Leicester’s commerce also lies in the engineering, retail, and food and drink sectors.

5-year start-up survival rate: 40.5%
Average weekly pay for full-time workers: £487.90
Average monthly cost to rent a 1-bed city centre apartment: £568.75
Population: 508,916
Number of employed adults: 128,142
Money available per week: £62,520,481.80
Index score out of 5: 2.42

3. Sunderland 

With roots as a trading port, Sunderland is now a strong centre for the services, automotive, science, and technology sectors. Its success is largely helped by Nissan Motor Manufacturing UK, which is the biggest employer in the region.

5-year start-up survival rate: 41.9%
Average weekly pay for full-time workers: £517.20
Average monthly cost to rent a 1-bed city centre apartment: £550
Population: 335,415
Number of employed adults: 116,562
Money available per week: £60,285,866.40
Index score out of 5: 2.46

2. Nottingham 

Historically, Nottingham was known for its bicycle manufacturing and lace-making. These days, it’s home to many major companies, while other businesses could benefit from the Nottingham Enterprise Zone and Creative Quarter. Digital media, life sciences, low-carbon technologies, finance, retail, and leisure are major contributors to Nottingham’s economy.

5-year start-up survival rate: 43.4%
Average weekly pay for full-time workers: £506.40
Average monthly cost to rent a 1-bed city centre apartment: £579.41
Population: 729,977
Number of employed adults: 112,861
Money available per week: £57,152,810.40
Index score out of 5: 2.66

1. Sheffield 

In 2019, Sheffield is the best UK city where you could start a business. The Steel City is known for its rich, industrial heritage. Although steel production has been in decline since the 1980s, Sheffield still develops advanced manufacturing technologies through its two universities and other research organisations. It’s also a major centre for sport and its public sector is a major employer.

5-year start-up survival rate: 44.9%
Average weekly pay for full-time workers: £542.10
Average monthly cost to rent a 1-bed city centre apartment: £585
Population: 685,368
Number of employed adults: 227,822
Money available per week: £123,502,306.20
Index score out of 5: 2.7

Source: London Loves Business

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Assessing Your Business Funding Options

Whether you’re a start-up, growth stage or established business, there are a number of external funding options available to you. Whether it be a short-term working capital injection, a long term growth agenda that needs financial backing, or a large asset purchase; there may be more funding options than you might think.

Selecting the correct source of finance for your business will require a number of key considerations, depending on your business needs and circumstances;

  • Is it just money that your business requires? Would your business benefit from the additional expertise of an equity investor?
  • How much funding does your business need?
  • Why does your business need the funding? Is this a short term or a long term requirement?
  • How much can you reasonably afford to borrow and what are your preferred payment terms?

Asset Financing

Finance the purchase of new machinery or equipment via an asset finance arrangement, allowing you to spread the cost of the purchase over an agreed time period. Monthly repayments of principal plus interest gives a distinct cash flow advantage to your business. You can also borrow funds against assets which you currently own, where your existing assets may or may not act as direct collateral against the loan value.

Bank Financing

Bank Loans – Commercial bank loans allow your business to borrow a sum of money in return for regular repayments of principal plus interest. You’ll achieve the best interest rates when you’re able to secure the loan against assets within the business. Though, if you are unable to do this, bank loans are still available, just at a slightly higher interest premium.

Invoice Financing – The ability to recover money tied up in outstanding invoices. In return for a percentage of the invoice value, the financer will pay the invoice value upfront. This gives a distinct cash flow advantage as you will not need to wait 30/60/90 days before receiving the cash from customers.

Business Overdrafts – A short term funding option giving you access to extra funds, typically for working capital purposes. Interest rates are based on your ability to repay the overdraft and are typically slightly higher than that of a bank loan.

Crowdfunding

Crowdfunding, whilst not suitable for all businesses, gives the user access to a large pool of would-be investors who may only be able to invest a small amount of money in return for shares in the business. The strength of the crowd means that you can access your required funding amount via a large number of investors.

Angel Investors                                 

Equity financing may be your preferred financing option. Angel investing is a way of private investors investing their own money in return for an equity stake in your business. Like Dragons Den, you may have the option of working with a solo investor or a group of investors. Angels may take an active role in your business and can be a useful source of business knowledge, mentoring and contacts. There are many tax advantages for Angels such as Enterprise Investment Scheme and the Seed Enterprise Investment Scheme. It is worth finding if your business is eligible as this can help attract angels to invest.

Venture capital and private equity

Both venture capitalists and private equity companies will hope to invest in your business, assist in accelerating your growth, and then exit the business having made a profit from the appreciation of the value of the business. Private equity tend to invest in more established businesses, whereas venture capitalists try to identify early stage companies with high-growth potential.

Source: Business News Wales

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Fintech firm urges SMEs to look beyond conventional bank funding

New analysis from ThinCats, the fintech lender to mid-sized small firms, shows that Manchester has a higher proportion of high-growth companies and businesses that are more likely to require funding during 2019 than the UK average.

ThinCats also discovered that businesses in Manchester have been quicker than most regions to look beyond the banks for funding since the financial crisis.

Almost two-thirds (64%) of Manchester-based SME loans were sourced through banks in 2007.

This figure has come down to 53% more recently, slightly below the UK average of 57%.

ThinCats is urging Manchester’s business owners to make sure they consider the increasing number of non-bank lenders when looking for funding in 2019.

Richard Lamb, director regional business development at ThinCats, said: “We analysed more than 200,000 businesses across the UK and found that the likelihood of Manchester businesses needing external funding in 2019 is significantly higher than the UK average.

“This may be to expand their teams, to help service new contracts, or to invest in new equipment.”

He added: “Manchester has proportionately more high growth companies compared to other parts of the UK.

“Unfortunately, these are exactly the types of companies that the high street banks struggle to fund.

“Half of businesses that are declined funding by their banks fail to look elsewhere. It is vital that Manchester’s entrepreneurs don’t give up at this stage.

“We estimate there are about 3,800 businesses in Manchester alone that we could help with funding.”

He said ThinCats has almost £1bn of capital from institutions and other long-term investors waiting to be deployed across the UK.

Further analysis by Thincats claims that Liverpool-based companies have been relatively slow to look beyond the banks for funding since the financial crisis.

It says that 78% of Liverpool-based SME loans were sourced through banks in 2007, and this figure has come down to 57% more recently, in line with the UK average.

Richard Lamb said: “There are around 1,900 SMEs in Liverpool, alone, that we could help with funding.”

Source: The Business Desk