Software exports hindered by lack of lending, IT chief warns

SCOTTISH technology firms seeking to export their software are being hampered by banks which are unwilling to back their products, according to the new chairman of ScotlandIS.

David Cairns, who was appointed to the IT trade body earlier this month, says the Scottish Government should use part of its limited enterprise budget to set up a low-cost technology insurance initiative that would encourage banks to support the sector.

He believes that such a proposal, which would act like other credit guarantee schemes and insure banks against the possibility of a firm defaulting on a loan or suppliers not paying up, would allow Scottish firms to harness valuable export markets, particularly in the US. At present, Scotland's 800 IT firms collectively source only 10 per cent of their business abroad.

Cairns, who has helped several high profile US companies float on the Nasdaq, points out that banks in other countries such as the US, Canada and France are more willing to provide loans and working capital to software firms whose products are often complex and based on ideas rather than physical products.

He said the lack of support from the banking sector in the UK was one of the chief obstacles to tech firms trying to boost their sales by accessing lucrative foreign markets.

"It's one of the big issues for software companies selling overseas. Because they are often not selling a tangible asset, or their software is often sold on licence, a lot of the banks in the UK will not finance it," Cairns said in his first interview since taking up the role at ScotlandIS. "Banks like to have hard assets that they can get security on. We haven't come across any UK banks that are comfortable with that."

Cairns argues that a government-backed insurance scheme would be cost efficient as the number of cases where banks are forced to draw on their insurance policies is "relatively low". The scheme would allow Scottish-headquartered firms to grow their revenue base.

Cairns argues the only way the UK and in particular Scotland, can return to healthy and stable economic growth is by tapping into export markets. But at present, without necessary financial support, selling overseas is a daunting prospect for particularly small, start-up technology firms.

"There are some individuals within banks who understand technology and there are the beginnings of attempts to try and create a portfolio around the technology area but it's nowhere as developed as in other countries," he said.

As well as his role at ScotlandIS, Cairns is executive chairman of Edinburgh-based communications software firm PrismTech. His experience of overseas markets includes floating Amsterdam-listed tech firm Baan and an IPO of PSA in Germany.