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Export Finance
Export-Import Bank of the U.S.
SBA Export Solutions Group
Trade Credit Insurance Agency, LLC
Sharyn Koenig
Patrick Hayes
Edward Arnold
Dear God, please, not another boring presentation on…
John Vilardo M&T Bank
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Financing Your Exports Unraveling the mysteries of trade finance
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The exporter’s challenge
Export Sales Opportunities
Fulfilling Orders Collecting on Sales
The Exporter The Exporter’s Banker
Credit Insurance Broker Credit
Insurance Underwriter
SBA EX-IM
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Problem #1 –
The 95 Percent Solution
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Problem #1 – The 95 percent solution
• This firm is an exporter, but cash-in-advance has been its mantra – Foreign customers are pushing for terms – They would buy more if they could get terms – Competitors are offering terms – Losing some foreign buyers to the competition
• But there is country risk! – War, revolution, inconvertible currency, embargo
• But there is commercial risk! – Foreign buyer can’t pay, files bankruptcy, disappears
What happens if they don’t pay?
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Credit Insurance
Broker
Credit Insurance
Broker
Private credit Insurance
Solution #1 – The 95 Percent Solution
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Problem #2 –
The case of the shrinking borrowing base
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Problem #2 – The case of the shrinking borrowing base
• This firm is an active, growing exporter – Lots of export customers, distributors – Export A/R and export-dedicated inventory represent an
increasing share of balance sheet assets • Their long-time lender provides an asset-based line of credit
– But the bank excludes foreign A/R in calculating their borrowing base
– They heavily discount the value of export-related assets
So as export sales ↑ ↑ ↑, working capital gets tighter
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Your Bank
Solution #2 – The case of the shrinking borrowing base
Credit Insurance
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Sample Borrowing Base
Collateral No Loan Guarantee With Loan Guarantee
Export Collateral
Value Advance Rate
Borrowing Base
Advance Rate
Borrowing Base
Raw Material $200,000 20% $40,000 75% $150,000
Work in Progress $200,000 0% $0 75% $150,000
Finished Goods $600,000 50% $300,000 75% $450,000
Foreign A/R on Open Account
$400,000 0% $0 80% $320,000
Foreign A/R by Letter of Credit
$600,000 70% $420,000 90% $540,000
MAX LOAN $2,000,000 $760,000 $1,610,000
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Problem #3 –
The case of the missing borrowing base
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Problem #3 – The case of the missing borrowing base
• This firm is an exporter, but cash-in-advance has been its mantra – Foreign customers are pushing for terms – Losing some foreign buyers to the competition
• But offering terms will create a working capital squeeze – To offer terms, the business will need a WC loan
• Their lender is receptive, but this historically cash-in-advance-driven firm has no export A/R to borrow against
No export A/R → no borrowing base → no Asset-Based Loan….?
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Your Bank
Your Bank
(direct)
Solution #3 – The case of the missing borrowing base
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Problem #4 –
The case of the prepayment that wasn’t
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Problem #4 – The case of the prepayment that wasn’t
• This firm is an exporter, but cash-in-advance is its mantra – The prepayment provides the working capital needed for
fulfilling purchase orders • A foreign buyer agrees to prepay, but their condition…
– A performance bond • The exporter asks their lender; they have a solution…
– A standby letter of credit – The cost? A bank fee and cash collateral maintained on
deposit = 100% of the face amount to the standby L/C
The exporter’s access to their prepayment WC is frozen!
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Your Bank
Your Bank
Solution #4 – The case of the prepayment that wasn’t
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Problem #5 – The case of the competitive exporter
• Exporter needs RE, M&E, debt refinancing…
• … anything to improve the competitive position of the exporter
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Your Bank
Solution #5 – The case of the competitive exporter
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Problem #6 – The case of the business that hated paperwork
• Exporter needs any or all of the solutions described above
• Loans up to $500,000
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Your Bank
Solution #6 – The case of the business that hated paperwork
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Problem #7 – The buyer without good banking options
• U.S. Exporting firm produces capital equipment
• Buyer favors their equipment, but has received a 5-year financing package from
U.S. firms’ foreign competition
• The machine is expensive and the buyer does not have cash on hand
• To finance machine using local bank would entail a high interest rate and a very
short term
The U.S. firm wants to win this order but can’t provide a 5-year financing package
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Your Bank
Solution #7 – The buyer without good banking options
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making exporting elementary… The game’s afoot!
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Contacts
Sharyn H. Koenig Managing Director, Eastern Region Export-Import Bank of the U.S. 5835 Blue Lagoon Drive, Suite 203 Miami, FL 33126 T: 305-526-7436 X 17 F: 305-526-7435 OR 866-491-9157 www.exim.gov
Patrick Hayes, International Trade Finance Manager – Eastern U.S. SBA Export Solutions Group U.S. Export Assistance Center 600 Superior Avenue, Suite 700 Cleveland, OH 44114 216-522-4731 www.sba.gov/international
Edward J. Arnold PhD Trade Credit Insurance Agency, LLC 5373 Transit Road Williamsville, NY 14221 Tel: 716-932-7713 Cel: 716-481-9370 Fax: 716-408-5508 e-mail: [email protected]
John Vilardo, Vice President International Trade Finance One Fountain Plaza 12th Floor Buffalo, New York 14203 716-848-7344 phone 716-848-7318 fax 716-863-3486 mobile [email protected]
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