The United States is the second largest exporter in the world for goods and the largest for services. U.S. exporters, 98 percent of which are small and medium-sized enterprises (SMEs), play a vital role in the American economy by creating jobs and generating economic growth.
However, cross-border transactions present financing challenges to SMEs because, due to the repayment risk associated with export sales, the availability of commercial working capital loans is generally limited only to financially stable large corporations. SME exporters also face challenges in offering competitive open account credit terms in global markets because of the risk of non-payment by foreign buyers.
In addition, international sales of high-value capital equipment and exports to large-scale projects, which require medium- or long-term financing, often pose special challenges, not only to SMEs, but also to large established corporations as commercial lenders may be reluctant to lend large sums to foreign buyers, especially those in developing countries, for extended periods.
One viable solution to these challenges is the Export-Import Bank of the United States (EXIM). As the official export credit agency of the United States, EXIM supports American jobs by facilitating U.S. exports through three primary programs:
1. Working Capital Loan Guarantees,
2. Export Credit Insurance, and
3. Foreign Buyer Financing.
EXIM does not compete with commercial lenders or insurance firms but provides export finance products that fill gaps in trade financing by assuming country and credit risks that the private sector is unable or unwilling to accept. With EXIM’s export financing, U.S. SME exporters can turn their business opportunities into real transactions, ensure they get paid for export sales, and continue to grow and succeed in global markets.
Characteristics of EXIM Export Finance Programs
• Applicability: Suitable for the export of goods and services to foreign markets as well as high-value capital equipment or large-scale projects that require extended-term financing.
• Risk: EXIM assumes country and credit risks that the private sector is unable or unwilling to accept.
• Pros: Allows exporter to offer competitive open account terms while minimizing the risk of non-payment by foreign buyers. Enables buyer financing as part of an attractive sales package.
• Cons: EXIM’s support is not available in all developing and emerging markets. Financing may be subject to certain restrictions based on political or economic conditions.
Key Points
• EXIM, the official export credit agency of the United States, supports American jobs by facilitating U.S. exports through three primary export finance programs by assuming country and credit risks that the private sector is unable or unwilling to accept.
• EXIM’s Working Capital Loan Guarantee ensures the repayment of loans extended by participating commercial lenders to eligible U.S. exporters in need of liquidity to help accept new business and grow in global markets.
• EXIM’s Export Credit Insurance helps U.S. exporters offer competitive open account terms in global markets while minimizing the risk of non-payment by foreign buyers.
• EXIM’s Foreign Buyer Financing helps turn high-value export or large-scale project opportunities, especially in risky emerging markets, into real transactions for U.S. exporters by providing creditworthy foreign buyers with guarantees for term financing offered by commercial lenders. Direct loans at a fixed rate can be offered in select circumstances.
• EXIM offers enhanced financing and assistance to small businesses as well as businesses owned by minorities, women, veterans, and people with disabilities.
• EXIM also has several other special initiatives to provide financing support for:
• Renewable energy and environmentally beneficial exports.
• Exports to sub-Saharan Africa.
• Exporters facing competition from China in 10 specified export areas.
• Exports related to medical technology, transportation security, and textile manufacturing.
EXIM’s Working Capital Loan Guarantee
EXIM’s Working Capital Loan Guarantee helps U.S. exporters obtain needed credit facilities from participating commercial lenders to acquire goods and services to fulfill export orders and help extend open account terms to their foreign buyers. Advance rates offered by commercial lenders on export inventory and foreign accounts receivable are generally not sufficient to meet the needs of U.S. exporters. In addition, some commercial lenders simply do not lend to U.S. exporters without a government guarantee due to repayment risks associated with export sales. Thus, this program encourages commercial lenders to extend working capital facilities to eligible U.S. exporters by guaranteeing their loan repayment obligations.
EXIM’s Export Credit Insurance
EXIM’s Export Credit Insurance (ECI) helps U.S. exporters offer competitive open account terms in global markets while minimizing the risk of non-payment by foreign buyers. EXIM’s ECI is offered either on a single-buyer basis or on a portfolio multi-buyer basis for short-term (up to one year) and medium-term (one to five years) repayment periods. The cost of ECI, which is generally much less than the fees charged for letters of credit, is often built into the sales price to accommodate foreign buyers who wish to trade on open account terms.
Exporters are encouraged to enlist the service of a reputable specialized insurance broker to shop for ECI policies, which are also offered by many private commercial risk insurance companies, to explore the best coverage options. With reduced non-payment risk, U.S. exporters can increase international sales, establish market share in emerging and developing countries, and compete more vigorously in global markets.
EXIM’s Foreign Buyer Financing
EXIM’s Foreign Buyer Financing assists U.S. exporters by guaranteeing repayment of commercial loans to creditworthy foreign buyers for purchases of U.S. goods and services. They are generally used to finance the purchase of high-value capital equipment or services or exports to large-scale projects that require medium- or long-term financing. This program is also used to finance the purchase of refurbished equipment, software, and certain banking and legal fees, as well as some local costs and expenses.
There is no minimum or maximum limit to the size of the export sale that may be supported by this program. EXIM requires the foreign buyer to make a cash payment to the exporter equal to at least 15 percent of the U.S. supply contract. Repayment terms up to five years are available for exports of capital goods and services.
Transportation equipment and exports to large-scale projects may be eligible for repayment terms up to 10 years (12 to 18 years for certain sectors). Direct loans at a fixed rate can be offered in select circumstances.
For More Information
Military items are generally not eligible for EXIM financing nor are sales to foreign military entities. Goods must meet EXIM’s U.S. content requirements and ship from a U.S. port. Finally, EXIM’s support may not be available or subject to restrictions in certain countries due to political or economic conditions.
More information about EXIM export finance programs: https://www.exim.gov/.
These links updated: 4/23/18. This website has been funded in part by the U.S. Commercial Service. Copyright (c) All Rights Reserved by the District Export Council of Georgia. Image:: Fotolia_47136361_Subscription_XL .