Dec 14, 2015
By David Josephson at Export-Import Bank of the U.S.
Why should a small bank with a focus on its local customers and deposits care about including export finance in their offerings to customers? The answer is quite simple: more and more, their customers who are manufacturers or service providers are going global in order to boost their sales, and the more that a local bank knows about export finance, the more valuable that bank is to its customers.
The Export-Import Bank of the U.S. (Ex-Im), America’s official export credit agency, exists to support U.S. job growth by equipping businesses with export financing tools in instances when private banks are unable or unwilling to offer support. More than 98 percent of Ex-Im’s transactions last year involved partnering with a private financial institution to support export sales; all told, Ex-Im supported 164,000 American jobs by supplying products like insurance, working capital, and loan guarantees to its customers—90 percent of which were U.S. small businesses.
Here is a basic toolkit of export finance programs offered by Ex-Im that community banks can bring to the attention of their exporting customers in order to boost their export sales and create more jobs in their communities:
- Financing the foreign accounts receivables of your exporting customer. Ex-Im Bank will likely insure these receivables if at least 50% of the exported goods are of U.S. origin. The insurance policy’s claim payment can be assigned to the lending bank that finances the foreign receivables. With U.S. government insurance behind the foreign receivables, the loan takes on an improved risk-quality rating because the receivable, as an asset, is protected by U.S. government insurance.
- Lines of credit to your exporting customers, guaranteed by Ex-Im Bank or the SBA. A bank can get guarantees from SBA ranging from 75% to 90% of the loan amount, and from Ex-Im Bank for 90% of the loan, if your customer has an eligible export business. These loans can be used for a wide variety of purposes, including, but not limited to: attending a foreign trade show, foreign purchase order financing, pre-export working capital loans, and financing manufacturing and service orders from foreign parties.
- Short-term loans/lines of credit for foreign buyers of your customer’s exported goods (“foreign customer finance”). If your bank can tolerate 10% of the risk associated with a foreign market, Ex-Im will cover 90% of your loan’s principal and interest with U.S. government insurance. This puts a customer finance solution in the foreign country at your exporting clients’ fingertips, and greatly increases their competitiveness as a vendor.
- Medium-term financing for foreign buyers of your customer’s exported goods. In some cases, Ex-Im will provide a 100% principal and interest insurance policy or full guarantee to a transaction. In order to qualify, the goods have to be considered “capital equipment” and the loan has to be for a term of two years or more. In addition, the borrower/buyer of the U.S.-manufactured capital equipment must be in an emerging country and qualify on balance sheet and income statement financial ratios. However, if these criteria are met, this program is a very powerful tool for the banker and the exporter, especially at today’s low interest rates.
In foreign countries, equivalents of these finance tools from foreign governments have been used for decades to support their local manufacturers and services exporters. For years, U.S. exporters and their bankers have had access to these resources from the U.S. government as well—but too few exporters and local financial institutions are aware that they are available to support them in completing transactions. To take advantage of them, exporters and their bankers need only to construct a basic transaction and bring it to their local Ex-Im or SBA representative. Local staff will evaluate the transaction, and offer guidance to the exporter and banker in applying for these tools.
For questions about these programs, contact your nearest Ex-Im Bank Regional Office, which can be found at http://www.exim.gov/smallbusiness/email-form.cfm. You can also visit http://grow.exim.gov/contact-exim to receive your free trade finance guide or www.exim.gov to learn more about export solutions for small businesses.
David Josephson is the Western Regional Director of the Export-Import Bank of the United States.
Originally Published in March 2015