Government
Guarantee Export Working Capital Programs
Financing
rates offered by commercial banks on export inventory and
foreign accounts receivables are not always sufficient to
meet the needs of U.S. exporters. In addition, some banks
are reluctant to extend credit due to the repayment risk associated
with export sales. In such cases, government-guaranteed export
working capital facilities can provide the exporter with the
liquidity to accept new business, help grow export sales,
and compete more effectively in the global marketplace. Two
U.S. government agencies—the Export-Import Bank of the
United States (Ex-Im Bank) and the U.S. Small Business Administration
(SBA)—work together to offer such pro¬grams to U.S.
firms through participating lenders. By completing one standardized
application form, exporters are directed to the agency best
able to assist them, with SBA typically handling facilities
below $2 million and Ex-Im Bank processing larger requests.
Additionally,
SBA financing is limited to small businesses. Through these
government-guaranteed export working capital programs (EWCP),
U.S. exporters are able to obtain needed facilities from commercial
lenders when financing is otherwise not available or when
their borrowing capacity needs to be increased.
Key
Points
•
Fulfill export sales orders by expanding access to export
working capital financing.
•
Maximize the borrowing base by turning export inventory and
accounts receivable into cash.
•
Risk mitigation may be needed to offer open account terms
confidently in the global market.
Comparison:
Commercial Facility vs. Guaranteed Facility
Examples
of how the EWCP can increase your borrowing base against your
total collateral value are given below.
EWCP
advance rates may vary depending on the quality of the collateral
offered.
Characteristics of an EWCP
Applicability
When
commercial financing is otherwise not available or when pre-approved
borrowing capacity is not sufficient.
Risk
Without
the use of proper risk mitigation measures, the exporter is
exposed significantly to the risk of nonpayment.
Pros
•
Encourage lenders to make financing to exporters
•
Enable lenders to offer generous advance rates
Cons
•
Cost of obtaining and maintaining a guaranteed facility
•
Risk mitigation may be needed, incurring additional costs
Borrow
up to $1.65 million against your collateral value of $2 million
Key
Features of Ex-Im Bank’s Export Working Capital Program
•
For U.S. exporters and credit lines of all sizes, usually
$2 million or more.
•
Must adhere to the Bank’s requirements for content,
non-military uses and country policy.
•
Nonrefundable $100 application fee.
•
1.5 percent upfront facility fee based on the total loan amount
and a one-year loan.
•
Fees and interest rate charged by the commercial lender are
usually negotiable.
•
Enhancements are available for minority- or woman-owned, rural
and environmental firms.
•
For more information, visit www.exim.gov or call 1-800-565-EXIM.
Key
Features of the SBA’s Export Working Capital Program
•
For small businesses that meet the SBA’s guidelines
and require credit lines up to $2 million.
•
No applications fee and no restrictions regarding foreign
content or military sales.
•
0.25 percent upfront facility fee based on the guaranteed
portion and a loan up to 12 months.
•
Fees and interest rate charged by the commercial lender are
usually negotiable.
•
For more information, visit www.sba.gov/OIT or call 1-800-U-ASK-SBA.
Why
Risk Mitigation May Be Needed
The
EWCP does not make exporters immune to the risk of nonpayment
by foreign customers. The use of some forms of risk mitigation
may be needed to offer open account terms more confidently
in the global market. Possible risk mitigation measures recommended
for use in conjunction with open account terms are (1) export
credit insurance, (2) export factoring, and (3) forfaiting.
|
