Introduction

The customary problems in obtaining financing for export transactions have been sharply magnified by the global financial crisis.  If foreign purchasers of U.S. goods and services are to consummate the acquisition of products from U.S. sellers in such a credit environment, it is important for such overseas importers to have an understanding of the role of the Export-Import Bank of the United States (“Ex-Im Bank”) and the various financial products that it offers.  Although an overseas importer of U.S. products may not itself qualify for direct financing from Ex-Im Bank, it may be able to bring an export transaction to fruition by recommending that the U.S. exporter approach Ex-Im Bank for the necessary financing arrangements on the U.S. side.

The Obama administration has targeted the export of U.S. goods and services as an important component of its efforts to lift the United States out of the current financial crisis.1  In its continuing support of this objective, over the past year Ex-Im Bank has stepped up its efforts to address the difficulties faced both by American exporters and by overseas purchasers of U.S. goods and services in financing export transactions.  Ex-Im Bank has significantly increased authorizations under its various programs2, which include direct loans, guaranties and export credit insurance and which make credit available to both U.S. exporters and foreign purchasers.

Export financing can be difficult and costly to obtain from commercial lenders as a result of the unique risks and difficulties that exporters face.  Lenders justifiably fear cross-border risks such as enforcing their secured liens and payment terms in a foreign jurisdiction, as well as the threats to collateral arising from political, economic and currency risk.  Moreover, the foreign importer may face its own difficulties in obtaining purchase financing if its domestic credit markets are underdeveloped.  Ex-Im Bank’s mandate is to fill the gaps in the global finance system where U.S. commercial lenders are unwilling to operate or foreign lenders are unable to provide capital.

Ex-Im Bank Products and Initiatives

Ex-Im Bank’s financing programs fall into four general categories.  For domestic exporters of goods and services, it provides export credit insurance and working capital facility guarantees.  Its other longer term guarantees and direct loans are available for the domestic exporter as well as the foreign importer under certain circumstances.  Last, it guaranties project finance transactions related to large-scale infrastructure and energy projects.  Ex-Im Bank also has strategic development mandates, either geographic in nature, such as its Sub-Saharan Africa initiative, or by market sector, such as supporting the export of medical products, transportation security products and renewable energy and environmentally beneficial products.

Guarantees and Direct Loans

Perhaps of greatest interest to a foreign importer is Ex-Im Bank’s medium- and long-term direct loan programs for foreign buyers.  Ex-Im Bank will finance up to 85% of an export contract’s value for a term of seven years or longer, subject to the general rule that 85% of the content of the goods being sold is U.S. content.  The foreign importer will be required to make a cash payment to the U.S. exporter of no less than the remaining 15% of the contract value.  The fixed interest rates on such loans are set at the lowest rate permitted under the international agreement3 to which Ex-Im Bank and similar foreign trade banks are party.  As of February 15, 2010, that minimum interest rate was 3.48% for loans having a seven year maturity4.  Ex-Im Bank operates many of its programs through a delegation of authority to commercial lenders.  This simplifies the underwriting process by allowing the foreign importer to interface with a local commercial lender in its native language.  Any such loans originated through a foreign lender are then guarantied by Ex-Im Bank.  Additionally, Ex-Im Bank has entered into credit facilities directly with certain foreign banks to provide them with the necessary liquidity to finance local purchasers of U.S. goods and services.5 

Export Credit Insurance

From the perspective of a foreign importer, export credit insurance is important because a purchase of goods may be consummated on credit, without the foreign buyer having to fund a cash purchase price in advance or going to the expense of obtaining a letter of credit.  And for a U.S. exporter, an export transaction can be more easily financed when the underlying account receivable is covered by an export credit insurance policy.  Accordingly, Ex-Im Bank’s Export Credit Insurance Program, again operated through a local network of delegated insurance agents, insures against the risk of non-payment by a foreign purchaser that may arise from commercial and political risks.  Two kinds of policies are available.  Single-buyer policies cover a single transaction.  Multi-buyer policies allow the U.S. exporter to offer its own credit terms to various foreign importers.  Policies generally have terms of six months to a year, depending on the kind of goods being insured, but longer term policies having a five year term may be obtained for up to U.S.$10 million contract value.  Covered losses under such policies are no less than 85% of the amount of the transaction invoice.  Once again setting a new record, Ex-Im Bank authorized U.S.$6.5 billion in export credit insurance in fiscal year 2009, U.S.$2.7 billion of which was in respect of small business transactions.

Working Capital Program

Where the parties to an export sale anticipate difficulties in financing the transaction, a foreign importer should recommend that the U.S. exporter explore the possibility of obtaining “pre-export financing” through Ex-Im Bank’s Working Capital Program.  Under the program, the U.S. exporter may obtain a secured line of credit issued by a domestic commercial lender that is guarantied for up to three years by Ex-Im Bank.  By the end of its 2009 fiscal year, Ex-Im Bank had authorized U.S.$1.5 billion of such working capital guaranties through its network of delegated domestic lenders, a new record amount.  Such guarantees cover 75% of raw materials, work-in-progress and finished goods, and 90% of accounts receivable.  Pursuant to Ex-Im Bank’s federal mandate, its working capital loans may only finance the production of goods containing at least 50% U.S. content.  U.S. small businesses are the primary beneficiaries of the Working Capital Program, with over 80% of authorizations in fiscal year 2009 supporting credit facilities for small businesses.

Geographic and Market Sector Initiatives

To advance federal policy considerations and targeted trade initiatives, Ex-Im Bank has established programs with particular geographic or market scopes.  Generally, products related to any such initiative are subject to relaxed underwriting procedures. 

For example, long-term loans to finance renewable energy and water projects can have a repayment term of fifteen years instead of the customary ten years.  Local costs (i.e., expenditures for goods and services purchased in the project country such as concrete and labor for a foundation) may be financed up to 30% of the contract price, and interest accruing during construction may be capitalized.  Although constituting a small component of Ex-Im Bank’s overall portfolio, such environmentally beneficial authorizations totaled U.S.$639 million in fiscal year 2009.  Additionally, Ex-Im Bank has created a team of designated officers to expedite such environmentally related projects.  Similar programs exist for medical exports and international transportation security.

To promote development in Sub-Saharan Africa and to advance the U.S. presence in that emerging market, Ex-Im Bank has formed a Sub-Saharan Africa Initiative.  In addition to establishing the Angola and Nigeria commercial bank credit facilities discussed above, Ex-Im Bank participates in trade conferences and seeks to promote trade between the U.S. and Africa.

Conclusion

As governments around the world promote their national export trade as a response to the global economic crisis, obtaining financing for such transactions becomes critical for accomplishing this objective.  The United States in particular is seeking to provide liquidity through the recent record level authorizations of Ex-Im Bank.  An understanding of Ex-Im Bank, its policies and products, is critical for foreign importers and their counsel to consummate such transactions in an efficient manner and on cost effective terms.