The 4 Types of Export Financing

1. Export Development and Working Capital Financing

Export-Import Bank: Working Capital Guarantee Program

The Export-Import Bank of the U.S. (EXIM) is an independent agency of the federal government that provides several types of financing to support the export of U.S. goods and services. (These programs include guarantees for loans, export credit insurance and direct loans to exporters and foreign buyers.)

EXIM’s Working Capital Loan Guarantee program increases the availability of the funds exporters need to expand their international operations. Through this program, EXIM issues a loan guarantee to the borrower’s bank, which reduces the lender’s risk and makes them more willing to extend loans.

These funds can be used to:

• Purchase materials, supplies, equipment and pay for the labor needed to fill export purchase orders.
• Buy finished products that will be exported.
• Provide standby letters of credit for bid and performance bonds requested by foreign buyers.

An EXIM loan guarantee has the following advantages:

• Borrowers receive lower interest rates than conventional loans.
• Lenders require less red tape to set up a line of credit.
• Exporters have to put up smaller amounts of their assets as collateral.
• Because EXIM guarantees 90% of the loan, lenders are more willing to extend a loan.
• Lenders are able to offer more flexible terms for individual contracts and revolving facilities.
• The program doesn’t have any minimum or maximum amounts.

SBA Export Working Capital Program

The Small Business Administration’s (SBA) Export Working Capital Program (EWCP) is similar to EXIM’s working capital program. It is designed to make U.S. exporters more competitive by providing low-cost financing. In turn, exporters would be in a better position to offer longer and more liberal credit terms to foreign buyers.

EWCP guarantees up to 90% of loans that local lenders make to exporters, with a maximum of $5 million. To make the program even easier to use, the SBA has authorized certain banks to underwrite the loans themselves and make commitments on behalf of the SBA. As a result, exporters are able to respond more quickly to international opportunities.

EWCP loans can be used for:

• Purchasing raw materials, financing work-in-progress and covering extended shipping times.
• Supporting long payment cycles for foreign accounts receivable.
• Financing standby letters of credit related to export transactions.

Loan disbursements through the EWCP only are made against confirmed export purchase orders.

SBA Export Express Program

The SBA’s Export Express Program is designed for simplicity and rapid response. Participating lenders can use their banks’ application forms, processing procedures and credit analysis, and the SBA will return an answer in 36 hours or less.

Up to $500,000 in funds from the Export Express program can be used for a company to develop international markets. For example, loan proceeds could finance:

• Expenses to participate in a foreign trade show.
• Promotional literature to use in foreign markets,
• Confirmed export purchase orders.
• Plant expansions and equipment purchases related to exports.
• Standby letters of credit.

Any company that has been in business for at least 12 months can apply for an SBA Export Express loan. The business just has to demonstrate that it will use the funds to develop international markets.

2. Facilities Development Financing

The SBA International Trade Loan Program (ITL) guarantees up to 90% of a maximum $5 million in loans to finance costs related to exports. Funds from this program can be used to:

• Acquire, construct, renovate or expand facilities and equipment in the U.S. that produce goods or services used in international trade.
• Finance working capital used to support international transactions.
• Refinance any debt with unreasonable terms and conditions.
• Improve a company’s ability to compete when adversely affected by imports.

ITLs can have maturities up to 10 years to finance working capital and equipment and up to 25 years for real estate. Interest rates are set at 2.25% to 2.75% above the prime rate.

Applicants have the same eligibility requirements as the SBA 7(a) loan program.

3. Financing for Your International Buyers

The U.S. government has a number of export financing programs designed to provide funds for foreign buyers to purchase products and services from U.S. exporters.

Export-Import Bank: Loan Guarantee Program

EXIM’s loan guarantee program gives U.S. exporters another tool to encourage foreign companies to buy their products. Through this program, U.S. exporters can improve their competitive positions by making applications to EXIM Bank on behalf of foreign buyers and offering them financing.

Foreign buyers like this program because they can get financing to buy U.S. products when their local banks are unwilling to extend credit.

Advantages of this program include:

• Buyers can be either private or public sector.
• Guarantees cover up to 85% of credit risk to a foreign buyer with 15% down payment.
• Can guarantee medium- and long-term transactions up to 10 years.
• Makes it easier for U.S. exporters to enter emerging markets.
• Covers 100% of commercial and political risks.
• No limits on transaction size.
• Financing can include up to 30% in local costs.

Export-Import Bank: Direct Loan Program

In addition to issuing guarantees for loans, EXIM Bank also makes loans directly to international buyers. Approval for these loans is based on the creditworthiness of the foreign buyer and the country’s political and commercial risks.

The program provides:

• Funding for the lesser of 85% of the value of eligible goods and services or 100% of the U.S. content in the total contract.
• Coverage for 100% of political and commercial risks.
• Financing for ancillary services and fees and up to 30% of local costs.
• Fixed-rate loans.
• Unlimited transaction size.
• Repayment terms from seven to 12 years and up to 18 years for renewable energy projects.

Export-Import Bank: Finance Lease Guarantee Program

EXIM also supports lease financing. Some foreign buyers prefer leasing instead of conventional installment loans. EXIM will issue guarantees for lease financing to creditworthy private and public sector lessees.

The lease guarantee program features the following benefits:

• Gives foreign buyers the option of leasing goods instead of taking out loans.
• Has flexible financing options and repayment terms.
• Can handle transactions up to $10 million.
• Provides coverage for the lesser of 85% of the contract value or the actual U.S. content amount.
• Accepts full payout leases and conditional sales contracts with no residual value.

Conditions:

• Only finance leases are eligible for this program.
• EXIM requires the lessee to make a down payment of at least 15% of the contract amount.
• Payments can be made monthly, quarterly or semiannually.
• While EXIM doesn’t mandate a particular lease agreement form, it does require lessors to submit their own forms to EXIM for approval.
• Lessee approvals are based on the same standard EXIM qualifications as used for guarantees and loans.

USDA, Foreign Agricultural Service Export Credit Guarantees

The Export Credit Guarantee Program offered by the U.S. Department of Agriculture (USDA) encourages the exports of U.S. agricultural commodities by issuing credit guarantees for foreign financial institutions. The objective is to reduce the financial risk that U.S. private banks take when advising or confirming irrevocable letters of credit from financial institutions in developing countries. The guarantees are issued by the Commodity Credit Corp. (CCC).

The CCC evaluates the credit status of the foreign institutions based on a country-risk analysis, the financial strength of the foreign bank and the availability of foreign exchange in dollars to service the debt. The agricultural commodities eligible for this CCC program are dictated by market potential and relevant legislative and regulatory requirements.

4. Investment Project Financing

Overseas Private Investment Corp. Small and Medium Enterprise Financing

The objective of the Overseas Private Investment Corp. (OPIC), the U.S. government’s development finance institution, is to provide long-term financing for investments by U.S. companies in developing and emerging countries where conventional financial institutions are reluctant or unwilling to lend.

Eligible projects would include investments in infrastructure, power generation, education, health care, telecommunications, housing and agribusiness. OPIC loans are used to cover the capital costs of a project, such as engineering, real-estate acquisition, construction and equipment.