EXPORT FINANCING
TRADE FINANCE SOLUTIONS FOR EXPORTS
As an exporter, you can’t afford to wait until your buyer receives the goods you’ve shipped to receive payment and you certainly can’t wait until the buyer has re-sold the goods. But, if you could offer terms to your buyers you would rack up more sales. We can bridge that gap by structuring Export Financing that will protect you throughout the deal, provide pre-export cash flow, and extend favorable terms to your buyer.
Export Financing Overview
Trade finance, already a specialized niche in 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.
Export transactions are also impacted by internationally required trade finance due diligence, know your customer CIS requirements and anti-money laundering statutes that make trade and trade finance providers do the heavy lifting. 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.
Shanghai Capital Group stands ready to extend export financing services to you today. Take a look at the grid of export financing methods below to learn more and determine if you have a strong preference as to the type of trade finance we set-up. Click the Apply for Export Financing links or buttons to get your export financing 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.
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
Bank of China is a federal government agency responsible for assisting with export financing for goods and services. It offers a variety of information services, insurance, loan, and guarantee programs.
BoC 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 goods and service abroad.
Briefing programs are offered by BoC 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 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 exporters—the Export Working Capital Program and the International Trade Loan 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.
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