Smart Money: Financing options for companies looking to export
RENO, Nev. — Commercial banks, lenders and the federal government have many different programs to finance your exports. Following are different financial options available for companies that are looking to ship their goods and services overseas.
Export Working Capital loans
Export Working Capital loans are typically extended by commercial banks and lenders to allow the exporters to purchase raw materials, goods, services, inventory and pay for labor and other expenses. The goal is to help the exporter fulfill export purchase orders, and financing allows the exporter to extend terms to buyers.
The borrower’s assets and personal guarantee may secure working capital loans. Typically these loans are up to one year in duration. Commercial lenders have other requirements to approve these loans such as: number of years in business; experience of management; profitability of the borrower; acceptable assets; and personal guarantee of the borrower(s).
Government-guaranteed Export Working Capital loan programs
Two U.S. government agencies — the Export–Import Bank of the United States (EXIM Bank) and the U.S. Small Business Administration (SBA) — offer loan guarantees to participating lenders for making export loans to U.S.
We break both down below:
The Export-Import Bank of the United States (EXIM) is the official export credit agency of the United States. EXIM has many different programs to support the exporting of U.S. products and services.
One of its programs provides guarantees to the exporter’s bank for export working capital facilities. This guarantee program enhances the exporters’ ability to obtain loans for the export of goods and services.
Export working capital loans are extended by commercial lenders and guaranteed by EXIM. The EXIM guarantee facilitates the lender’s approval. The program significantly increases the exporter’s ability to borrow.
The EXIM guaranteed export working capital facility is an asset-based loan or line that is secured by export related assets. Under the EXIM guarantee program, the advance rates of export related assets are more attractive than conventional financing.
Eligible exporters must be located in the U.S.; must have at least one year of operating history; and must have positive net worth.
Eligible exports must be shipped from the U.S.; and must have at least 50% U.S. content.
Please visit the EXIM website at http://www.EXIM.gov for more information about EXIM and how government-guaranteed Export Working Capital loan programs can increase borrowing power.
The U.S. Small Business Administration was created through the Small Business Act of 1958. It provides loans, loan guarantees, counseling and other forms of assistance to small businesses.
The SBA has two export loan guarantee programs to help small businesses:
- SBA Export Express Loan Program guarantees bank loans up to $350,000 carry a 90% guarantee while Loans up to $500,000 carry a 75% guarantee.
- SBA Export Working Capital Program (EWCP) guarantees bank loans up to $5 million carry a 75% guarantee. The advance rates are up to 90%.
Bank lending facilities can be lines of credit, revolving lines of credit term loans, financing of standby letters of credit, transaction specific and other types of financing. Loans are extended by commercial lenders and guaranteed by SBA.
SBA Express Exporter Benefits include: fast approval and increased access to capital; flexible line of credit financing; financing for standby letters and export; transaction-specific financing; and revolving lines of credit, term loans and other financing.
SBA Export Working Capital Benefits include: minimizes risk and accommodates customer needs; bridges financial gaps; flexibility to finance single or multiple transactions; local SBA Trade Credit Officers available for guidance and custom deals; quick turnaround of 5-10 working days; guarantees 90% of principal and accrued interest up to 120 days; low guarantee fees; and loan maturities typically 12 months or less.
To be eligible, borrowers must meet the SBA standard provisions, size standards, as well as be in business for at least one year and demonstrate that loan proceeds will support the borrower’s export development activity.
A major difference between the EXIM and SBA programs is that the SBA has no requirement for U.S. content. For more information, visit the SBA website at http://www.SBA.gov.
Other Export Financing Options
- Factoring is a type of financing in which the exporter sells its short term accounts receivables related to the sale of ordinary goods to a factor at a discount with or without recourse. The factor is a financial intermediary. While factoring is normally more expensive than commercial loans, it can eliminate the risk to the exporter of non-payments by foreign buyers.
- Discounting term letters of credit allows the exporter to extend terms to the buyer and accelerate the exporter’s cash flow. A term letter of credit is issued by the buyer in favor of the exporter that allows the buyer to pay for the goods at a later time. The term could be any period up to 180 days after sight or shipping date. Once the exporter presents compliant documents that are accepted by the issuing bank and a future payment date is specified, the exporter’s advising may discount the future payment and pay the exporter prior to the due date.
- Transferrable letters of credit are an effective leveraging tool for smaller exporters, distributors and wholesalers with minimal borrowing capacity on their own. Middlemen normally use transferrable letters of credit issued in their favor to transfer all or part of the proceeds of the letter of credit to the actual supplier or manufacturer who then exports the goods.
Robert Saikali is vice president of international trade at City National Bank. For more information about financing options for companies looking to export, contact Robert at Robert.Saikali@cnb.com or 213-673-8636.
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