Risk & Compliance / Finance & Credit

Exporting With Confidence … And A Guarantee

October 9, 2012
In May 2012, after months of political debate and uncertainty for U.S. exporters, President Barack Obama signed the Export-Import Bank Reauthorization Act of 2012. Signed just one day before funding for the Export-Import Bank of the United States (Ex-Im Bank) was set to expire, the legislation reauthorizes the bank through 2014, increasing its lending cap from $100 billion to $140 billion and enabling it to continue supporting U.S. exporters and foreign buyers of U.S. goods.

That reauthorization of the Ex-Im Bank is in line with President Obama’s National Export Initiative and its goal to double U.S. exports to $3.14 trillion between 2010 and 2014. The National Export Initiative has helped increase access to export financing and has driven new U.S. trade agreements with nations such as South Korea, Colombia and Panama by cutting tariffs and quotas to help U.S. businesses compete with foreign companies in the global marketplace.

So what is the Ex-Im Bank and what does it do? As the official export credit agency of the United States, the Ex-Im Bank supports U.S. exports by providing U.S. companies and foreign buyers of U.S.-made goods with government-guaranteed export working capital loans, among other services. It’s especially helpful to small- and medium-sized businesses and has generated or sustained an estimated 290,000 American jobs.

The Ex-Im Bank partners with commercial lenders, such as UPS Capital Business Credit, to support various trade finance loans, including export working capital loans, which help generate and increase international sales of U.S. goods and services. Export working capital loans enable U.S. companies to focus on selling quality goods and services to foreign buyers by providing financing for inventory and receivables generally deemed ineligible under domestic lines of credit. And, generally, U.S. exporters using Ex-Im Bank export working capital loans can sell, bid and negotiate more competitively compared to exporters backed by the export credit agencies of other countries.

Export working capital loans from the Ex-Im Bank provide U.S. companies with many benefits not offered by other sources, such as venture capitalists and private equity. For starters, other sources of export financing can be more expensive, with higher interest rates driven by increased exposure to risk of selling to foreign buyers. Working capital loans supported by the Ex-Im Bank typically provide higher advance rates than standard lines, including advances against work-in-process inventory, leading to improved cash flows for borrowers.

Export working capital loans supported by the Ex-Im Bank and their commercial lending partners often typically come with customized support services, ranging from credit insurance and cargo insurance to logistics support from non-traditional commercial lenders, including customs brokerage and shipping services.

The benefits of export financing from the Ex-Im Bank are real, but for many companies interested in securing Ex-Im Bank export working capital loans, questions remain about how to qualify and where to go for additional information.

 

Who Qualifies for Ex-Im Bank’s Export Financing?

The obvious candidates for export working capital loans are U.S. companies selling U.S.-made goods and services to international buyers. However, it might be surprising to learn about the less obvious types of companies that qualify.

For example, the Ex-Im Bank provides export working capital loans to U.S. companies that sell to other U.S. companies, which then package those products with their own goods before exporting them to foreign buyers.

One company that fits the bill is Master WorkHolding Inc., of Morganton, N.C., which specializes in the design and manufacture of devices used by other companies to hold work pieces in place while they are machined. Master WorkHolding is using a $750,000 Ex-Im Bank export working capital line of credit to fulfill purchase orders from its customers.

A significant portion of Master WorkHolding’s business comes from U.S. companies that purchase its products, combine them with their own and then export that package to international buyers. Master WorkHolding is using its export credit facility to finance orders both directly from international customers and from U.S. customers that incorporate Master WorkHolding’s products into their own finished goods before exporting to foreign buyers.

 

How does a company qualify for Ex-Im Bank financing?

The Ex-Im Bank’s export working capital loans are available to a variety of companies; however, there are some basic qualifications companies should know about when exploring whether these loans are right for them:

The exporter must be located in the United States, have a positive net worth and have been operating for at least one year.

Exports must be goods containing at least 50 percent U.S. content and shipped from the United States, or must be services provided by U.S.-based employees.

There is no minimum or maximum transaction value, and working capital loans from the Ex-Im Bank may be used to:

•          Purchase finished products for overseas distribution.

•          Fund production and sourcing costs.

•          Cover standby letters of credit.

•          Finance foreign receivables.

 

Where can exporters find additional resources?

Prospective and even seasoned exporters often do not realize how many information resources are available at the local, state and federal levels to provide end-to-end guidance, from financing to market entry.

The Ex-Im Bank website is the primary resource available, with a page devoted exclusively to providing information about export working capital loans: www.exim.gov/products/work_cap.cfm.

Beyond that, www.export.gov is the U.S. government’s export promotion and finance portal. Managed by the U.S. Department of Commerce International Trade Administration, the site consolidates information and services from many government agencies and private companies, including the U.S. Trade and Development Agency, Department of Energy, Department of Agriculture, Small Business Administration, and Overseas Private Investment Corporation.

The U.S. Commercial Service also provides information as the trade promotion arm of the Department of Commerce, with American and local counselors in more than 100 U.S. cities and the major cities of more than 75 countries. The U.S. Commercial Service’s www.buyusa.gov website helps connect prospective U.S. exporters with target market buyers, distributors, trade shows and official outbound and inbound trade missions. It also provides market analysis, trade data, counseling and marketing services.

Beyond federal resources, there is a plethora of additional information available from local small business development organizations and local chambers of commerce, among others. And experienced export working capital lenders such as UPS Capital Business Credit can also be great allies throughout the process.

The Export-Import Bank Reauthorization Act of 2012 gives many U.S. businesses the means – and confidence – to take advantage of exporting with government-backed financing. What’s more, they can count on support from Ex-Im Bank’s commercial lending partners for information about trends and opportunities to enter into new international markets, enabling even a small U.S. business to tap the vast market of overseas buyers and consumers. wt

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