Funding for overseas subsidiaries of UK companies

The UK remains a popular hub for global trade and in today’s highly interconnected economy, it is commonplace for international businesses to have often sizeable UK operations.

Whilst banks remain the source of everyday funding for many UK businesses, UK subsidiaries of overseas parents can find it challenging to access meaningful bank credit.  

To best navigate the UK funding landscape, it first pays to understand the challenges. 

The challenges

Security and overseas owners

UK lenders will almost always demand personal guarantees from directors and business owners as security on lending. They are, however, unlikely to accept personal guarantees from overseas owners, as they can be difficult to enforce and because of legal difficulties in pursuing claims against assets held in other jurisdictions. 

Limited UK credit history

The absence of an established UK credit history will often be a barrier to funding. Even where directors live and work in the UK, a limited or silent credit history will make it challenging for banks to effectively establish creditworthiness adding further barriers to funding.

Cost of credit

Banks may perceive UK subsidiaries of overseas parents as representing an elevated risk resulting in high costs and covenants on borrowing. That can be prohibitive.  

Regulatory complexity

Reporting requirements and corporate governance standards, alongside the regulatory environment, will vary from country to country. This can complicate or restrict UK lending applications. 

There are then added concerns for lenders and borrowers, including currency exchange considerations, concerns raised over operational oversight, enhanced due diligence and anti-money laundering scrutiny, and even cultural issues that often need to be addressed. 

How we can help

UK businesses with an overseas parent company wishing to better access borrowing in the UK may wish to consider the following strategies: 

Building banking relationships

Banks look to build long-term relationships with their corporate customers before substantial lending. With a credible and valuable banking history, supported by a positive working relationship, businesses will be better placed to access the funding they need.

Financial reporting and strong UK governance

Reporting and governance requirements will naturally vary from country to country. Where a business can, it should adopt strong reporting and governance that meet the same requirements as UK headquartered businesses. 

UK-based security

If banks require security, explore how that can be structured against UK assets, such as any UK property, equipment, or other assets.

Leverage parent company strength

Where direct UK security may be challenging, the overseas parent company may open other avenues. This might include facilities with the parent company’s primary bank or inter-company arrangements to demonstrate stability.  

As part of Kreston Global, an independent network of accountancy firms, we have extensive experience in working in partnership with the overseas advisers of parent companies with UK subsidiaries.

We have a dedicated Funding team that can help businesses prepare for and access funding in the UK, should you require assistance with this, please do get in touch.