Export Financing Overview
Trade finance, already a specialized niche within the banking and financial services sector, becomes even more specialized when it focuses on just export financing. Export financing and the broader trade finance are enormously different from commercial and mortgage lending. Trade financing and export financing have to account for extended time frames in the transaction lifecycle because buyer and seller are separated by up to two oceans and 10,000 miles. It takes longer to communicate, longer to ship and longer to get paid than with local transactions.
Extra time and expense are also required to perform counterparty Due Diligence, Know Your Customer and AML compliance. The reliability and suitability of importers and exporters are also examined. With export financing, those investigations focus entirely on the export side of the ledger.
While import-export transactions financed with cash in advance, open account and consignment purchases do take place, they almost never do, so we focus on the 80% to 90% of the industry that relies on professional, value-add export financing. The export financing solutions we offer are summarized in the grid below. Apply for Export Financing now to get your deal started. If you’re not ready to apply for financing, we encourage you to learn more about the Trade Finance Solutions best suited for your deal.
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Export Financing Solutions
Demand for export financing continues to rise amid the growing world shortage of trade finance. As it is becoming increasingly difficult to secure adequate trade financing, especially for small to medium-sized enterprises (SME) Global Trade Funding truly stands out as we continue to provide an uninterrupted flow of trade financing. We also enhance every application with unparalleled underwriting expertise and every transaction with Deal Structuring and Due Diligence advisory services. If you are having difficulty securing trade financing or if you applied for financing and were turned down by other lenders, submit a Trade Finance Request now and we’ll get the financing for your deal started today.
When an exporter requires an Export Letter of Credit from the buyer’s bank, that bank has substituted its credit for the buyer’s credit and guarantees full and timely payment from overseas importers.
Bank Instrument Monetization converts or monetizes idle financial instruments into cash by liquidating them to provide capital for import financing with little cost and almost no risk.
Bank Guarantees are instruments issued by banks that guarantee payment of the importer’s obligations to the exporter if the importer fails to make full payment under the contract.
Invoice factoring is a common export financing method where the exporter sells invoices from foreign accounts receivable to a factoring company to raise cash which can then fund additional business.
Export Financing Costs
The costs of borrowing, including interest rates, insurance and fees will vary. The total cost and its effect on the price of the product and profit from the transaction should be well understood before a pro forma invoice is submitted to the buyer.
Export Financing Terms
Costs increase with the length of terms. Different methods of financing are available for short, medium, and long terms. Exporters need to be fully aware of financing limitations so that they secure the right solution with the most favorable terms for seller and buyer.
Risk Management in Export Financing
The greater the risks associated with the transaction, the greater the cost to manage or mitigate the risk. The creditworthiness of the buyer directly affects the probability of payment to an exporter, but it is not the only factor of concern to a potential lender. The political and economic stability of the buyer’s country are taken into consideration. Lenders are generally concerned with two questions:
Can the exporter perform? They want to know that the exporter can produce and ship the product on time and that the product will be accepted by the buyer.
Can the buyer pay? They want to know that the buyer is reliable with a good credit history. They will evaluate any commercial or political risk.
If a lender is uncertain about the exporter’s ability to perform, or if additional credit capacity is needed, government guarantee programs are available that may enable the lender to provide additional financing.
Government Agency Assistance
Several federal and state government agencies offer programs to assist exporters with financing needs. Some are guarantee programs that require the participation of an approved lender, while others provide loans or grants to the exporter or a foreign government.
Government programs are generally aimed at improving an exporter’s access to credit. They are not intended to subsidize the cost of credit. With few exceptions, banks are allowed to charge market interest rates and fees; a portion of those fees are paid to the government agency to cover the agencies’ administrative costs and default risks.
Government guarantee and insurance programs are used by financiers to reduce the risk associated with loans to exporters. Lenders who are concerned with an exporter’s ability to perform under the terms of sale, and with an exporter’s ability to be paid, often use government programs to reduce the risks that would otherwise prevent them from providing financing.
Export Import Bank
Export Import Bank of the United States (EXIM Bank) is an independent federal government agency responsible for assisting with export financing for US goods and services. It offers a variety of information services, insurance, loan, and guarantee programs.
Ex-Im Bank operates an export financing hotline that provides information on the availability and use of export credit insurance, guarantees, direct and intermediary loans extended to finance the sale of U.S. goods and service abroad.
Briefing programs are offered by Ex-Im Bank to the small business community. These programs include regular seminars, group briefings, and individual discussions held both within the Bank and around the country.
Small Business Administration
The Small Business Administration (SBA) has some services specifically designed to help the small business get started in exporting. The SBA provides financial assistance programs for U.S. exporters. Applicants must qualify as small businesses under the SBA’s size standards and meet other eligibility criteria. The SBA has two main programs to assist U.S. exporters—the Export Working Capital Program and the International Trade Loan (ITL) program.
The SBA programs provide the small business owner with financing aids that will enable the business to obtain the capital needed to get into exporting. This program is designed to help small business exporters obtain financing by reducing risks to lenders. The SBA will guarantee up to 90% of a loan from a private bank. The proceeds from the loan can be used for pre-shipment working capital, post-shipment exposure coverage, or a combination of both.
Export Credit Insurance
It is almost inevitable that you will have to extend competitive credit terms to foreign buyers in you are going to grow your international business, which means absorbing more risk. What happens if you don’t get paid? Your foreign customers could go out of business or file bankruptcy, face currency devaluations or foreign exchange problems, run short on cash, or fail to pay you for any number of other commercial or political reasons. You can protect your foreign receivables against virtually all non-payment risks with an export credit insurance policy.
Export credit insurance is an effective sales tool that enables you to extend competitive payment terms without significantly increasing your risk. It can help you penetrate new markets, negotiate larger order quantities, establish or expand distribution, and increase the profitability of your export business. If you finance your receivables, the coverage will also make your foreign A/R more attractive to banks, factors, and other lenders so you can negotiate the most favorable advance rates and loan terms.
Trade Finance Solutions Learning Center
Trade finance is an important, highly necessary business in the financial services sector. Between 80% and 90% of all global trade relies on trade finance solutions. It is also one of the least understood areas in the financial services sector which impacts the trade finance solutions we offer. One of the things that undermines people’s understanding of trade finance is the absence of a universal vocabulary. Do a search for the definition of import financing, for instance, and the top 50 websites in search results will likely provide 50 different definitions.
We are creating a learning center with content that will improve understanding of trade finance. We are beginning with vocabulary and will include the definition of relevant industry terms on each page so our clients and visitors will have the factual information they need to make good business decisions.
Export financing is a segment of trade finance that exclusively provides financing for exports. Export financing includes a variety of financial products and services that have in common the similar purpose or objective of providing the financing that is needed to produce and ship export transactions. Examples of types of export financing include forfaiting, accounts receivable factoring, open accounts, consignment purchases and export letters of credit.
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