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Export Trade Finance & Insurance Seminar
Trade Connect International Trade Finance:
A Banker’s Perspective Global Trade Cycle Finance
Presented by: Caroline Brown
FVP, Trade Finance Officer
International Trade Finance, Western Market
May 8, 2013
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§ Intro to Comerica Bank
§ Tools/Goals of Trade
§ Overview of Global Trade Cycle
§ Methods of Payment
§ Global Trade Cycle Solutions
Objective
Comerica Bank – An Overview
3
Comerica Bank – An Overview § Headquartered in Dallas, Texas.
Locations in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico.
§ $59.3 billion in total assets as of December 31, 2009
§ #559 among Fortune’s largest companies
§ #12 among banking companies with the most commercial and industrial loans (American Banker)
§ Among the top 10 Ex-Im Bank working capital lenders
§ #30 among DiversityInc “Top 50 Companies for Diversity” in 2009
Comerica Bank – An Overview
§ Leading Letter of Credit Provider within U.S. Comerica ranks #9 among the top U.S. commercial banks, in letter of credit outstandings.1
§ Leading Lender for Ex-Im Bank Working Capital Guarantee Program. Comerica ranks #7 among the top 10 lenders.2 We hold the “Super” Delegated Authority and “Fast Track” lender designations.
§ Foreign Correspondent Bank Network. Comerica has coverage throughout Asia, Europe, Latin America, the Middle East and Africa.
§ Strong Credit Ratings. Comerica has strong credit ratings -- required for the acceptance of a Standby Letter of Credit. Present Ratings -- “A1” by Moody’s, and “A” by Standard & Poor’s and Fitch Ratings.
1 Source: Documentary Credit World (FDIC Statistics on Banking), 1st Quarter 2009 2 Source: Ex-Im Bank, FY 2009
Key Facts
Comerica Bank – An Overview
Trends/Goals in Trade
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§ Global Trends § Primary Goals
• To optimize working capital
• To mitigate key risks
• To reduce costs
• To simplify the trade process
Trends/Goals in Trade
Company
U.S. Exports and Imports Over the last decade, there has been steady growth in global trade---U.S. exports grew 35% and U.S. imports grew 28%.
U.S. Exports and Imports2000-2009
Value in thous ands ($US D )
0200,000,000400,000,000600,000,000800,000,000
1,000,000,0001,200,000,0001,400,000,0001,600,000,0001,800,000,0002,000,000,0002,200,000,0002,400,000,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Exports Imports
Source: International Trade Administration Note: Import data is not available by state
Source: International Trade Administration, TradeStats Express
U.S. Stats Comerica’s Footprint -- 40% of Total Exports In 2009, Comerica’s footprint represented 40% of total U.S. exports. TX is the #1 export market, followed by CA, #2 (11% of total exports), FL, #5; IL, #6; MI, #9; and AZ, #24.
#2 #24
#1
#9
#5
#6
0
20,000,0 00
40,000,0 00
60,000,0 00
80,000,0 00
100,000 ,000
120,000 ,000
140,000 ,000
160,000 ,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
California Exports2000-2009
Value in thousands ($USD)
Exports
Trend/Goals in Trade
California Stats California Depends on World Markets California’s export shipments of merchandise in 2009 totaled $120 billion, ranking California second only to Texas ($163 billion) among the states in terms of total exports in 2009.
California Exports1999-2007
V alue in thousands ($USD )
0
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
140,000,000
160,000,000
1999 2000 2001 2002 2003 2004 2005 2006 2007
Exports
Exports – Top Trading Partners The state’s top 10 trading partners are: (figures in thousands, $USD)
§ Mexico 17,484, 818
§ Canada 14,280,022
§ Japan 10,905,099
§ China 9,742,859
§ South Korea 5,944,788
§ Hong Kong 5,803,780
§ Germany 4,442,225
§ Taiwan 4,120,871
§ United Kingdom 3,916,277
§ Netherlands 3,567,219
Source: International Trade Administration, TradeStats Express Note: Import data is not available by state
Source: International Trade Administration, TradeStats Express Note: Import data is not available by state
California Exports2000-2009
Value in thous ands ($US D )
0
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
140,000,000
160,000,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Exports
Trend/Goals in Trade
Overview – The Global Trade Cycle
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“Global Supply Chain” “Supply Chain Management”
“Trade Cycle Financing”
“Supply Chain”
“Physical and Financial Supply Chain”
“Global Trade Cycle”
Buying and selling process between companies.
Overview - The Global Trade Cycle
Overview - The Global Trade Cycle
Effective management of the global trade cycle provides numerous benefits:
IMPORTER (BUYER) BENEFITS EXPORTER (SUPPLIER) BENEFITS
§ Optimize working capital
§ Improve cash flow forecasts
§ Take advantage of supplier discount terms
§ Improve supplier relations
§ Increase Days Payables Outstanding (DPO)
§ Optimize use of credit capacity
§ Reduce costs
§ Interest rate and capital arbitrage
§ Reduce working capital needs by using better inventory control and cash flow management
§ Improve sales forecasts
§ Lower financing rates on required working capital
§ Reduce Days Sales Outstanding (DSO)
§ Manage buyer credit risk more effectively
§ Reduce costs
§ Interest rate and capital arbitrage
Benefits
Overview – The Global Trade Cycle
Tools & Methods of Payments
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Methods of Payment There are four primary methods of payment for global transactions, with the level of risk varying for each.
Tools & Methods of Payment
The evaluation of risk in global commerce plays a major role in determining the method of payment to be used for settlement between buyer and supplier.
RISK EXAMPLES
Country / Political Risk § Economic instability, government restrictions on payment, war, embargo
Commercial Risk § Insolvency, unscrupulous buyers, fraud
Currency Risk § Convertibility of currency, exchange controls
Transportation Risk § Timeliness of delivery, piracy, pilferage, unions, loss of product
Documentary Risk § Wrong documents, improperly prepared documents, incomplete documents
Foreign Bank Risk § Insolvency, creditworthiness
Product Risk § Quality, quantity
Types of Risk
Overview - Global Trade Cycle
§ Letters of Credit: § Commercial Letters of Credit § Standby Letters of Credit
§ Documentary Collections § Financing:
§ Direct Bank Financing § Bankers’ Acceptances (BA) § Trade Acceptances § Ex-Im Bank Working Capital Guarantee Program (WCGP) § Private Insurance § Private Export Funding Corporation (PEFCO)
§ Online Solutions: § Comerica GlobalTRADE Web § Comerica TM Connect Web § Comerica eFX
Global Trade Cycle Solutions
Tools & Methods of Payment
SOLUTION DESCRIPTION § Commercial Letters of Credit • Irrevocable undertaking by a bank on behalf of its customer in favor of a
designated beneficiary, under which payment is effected only if the beneficiary presents documents in accordance with the letter of credit terms and conditions.
• Often referred to as Import Letters of Credit and Export Letters of Credit or Trade Letters of Credit.
• Confirmed Export Letters of Credit provide additional protection to exporters.
(Note: Bank deals only with documents, not goods.)
§ Standby Letters of Credit • Performance Standby Letter of Credit: Irrevocable undertaking by a bank to make payment to a designated beneficiary in the event that its customer fails to perform a non-financial contractual obligation (e.g., cover performance of contractors/suppliers, in lieu of a bid or performance bond).
• Financial Standby Letter of Credit: Irrevocable undertaking by a bank to make payment to a designated beneficiary in the event that its customer fails to fulfill a financial contractual obligation (e.g., support advance payment/payment guarantee, in lieu of cash or security deposit, support IRB/EDC).
Letters of Credit
Tools & Methods of Payment
SOLUTION DESCRIPTION § Documentary Collections • Buyer: Bank receives documents conveying title to goods from foreign bank and
delivers documents to its customer in exchange for payment or promise to pay at a future date.
• Supplier: Bank delivers documents conveying title to goods to foreign buyer’s bank for delivery to its customer in exchange for payment or promise to pay at a future date.
Documentary Collections
Tools & Methods of Payment
SOLUTION DESCRIPTION § Ex-Im Bank Working
Capital Guarantee Program (WCGP)
• Working capital loans backed by Ex-Im Bank guarantee (90% of loan amount, including principal and interest). Enables U.S. exporters -- large and small -- to facilitate the export of goods and services.
• Comerica holds:
• “Super” Delegated Authority lender designation (allowing us to commit credit facilities up to $10 million per borrower, without pre-approval from Ex-Im Bank); and
• “Fast Track” designation (allowing us to commit credit facilities greater than $10 million and up to $25 million per borrower, with expedited Ex-Im Bank approval).
§ SBA Export Working Capital Program (EWCP)
• Working capital loans for small businesses backed by SBA guarantee (guarantees repayment of up to $1.5 million or 90% of loan amount, whichever is less). Similar to the Ex-Im Bank WCGP, however, no U.S. content or military/defense product and service restrictions.
Financing
Tools & Methods of Payment
Questions and Answers
Caroline Brown First Vice President
Trade Finance Officer Long Beach, CA 562-590-2525
CVBrown@Comerica.com
Thank You!
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Risk Mi'ga'on in Export Finance
Nous Sommes Tous comme le ble dans les champs. Chacun unique, Chacune la meme.
Overview
• Start with due diligence • Nego'ate appropriate terms of sale • Use insurance to reduce risk
Know Your Customer
• Who and Where – Special issues related to interna'onal rela'onships
• Tax ID Number • Interna'onal Credit Reports • Tradi'onal Methods – Trade references – Site visits
• Financial Statements
Nego'ate Terms of Sale
• Not one size fits all – Cash in advance – LeNers of credit – Documentary collec'ons – Hybrid terms – Credit Cards – Open account
Credit Insurance
• What is Credit Insurance? – How does credit insurance work? – Basic Insurance assump'ons • Applied to credit insurance
– Risk protec'ons offered • Insolvency • Protracted default • Poli'cal risks
Why Credit Insurance
• Flexible tool – Risk protec'on – Financial leverage
• Buyer advantages – Least cost financing
• Seller advantages – Enhanced collateral posi'on with lender
» Foreign receivables » Concentra'ons of risk
– Backup or replacement of internal credit process – Lower administra've burden than documentary collec'ons
Who Offers Credit Insurance
• ExIm Bank (U.S. Government program) • The Private Market
How To Choose – Cost/Rate
• How are premiums calculated and paid? – Minimum Premiums – Deduc'ble – Available cover
• Key buyers • Single buyer • Poli'cal risks • Country availability • Content restric'ons
– Differences in Underwri'ng Support
Using Credit Insurance • Terms and Condi'ons: – Know your policy.
• Stop Shipment • Repor'ng • Claim filing requirements • Exclusions
• Policy Administra'on – Updates
• New Customers and Increased Limits • Longer Terms • New products • New Countries
Claims
• Claim Triggers – Wai'ng periods – Insolvency
• Claim filing deadline • Documentary Requirements – The big three
WRITTEN Purchase Orders Invoice Bill of Lading Things Need to Match.
More on Credit Limits
• Named buyer limits-‐the simple solu'on • Discre'onary Credit Limits – Rules based – Compliance with condi'ons is key to successful claims
– Some examples • Ledger history • Third party informa'on • Internal procedures become part of the policy
Assignment of Proceeds
• En'tles lender to claim payments • Does not enable lender to file a claim • May en'tle lender to policy onforma'on • The ExIm enhanced assignment
Specialty Brokers
• Familiar with specialized policy requirements • Infrastructured to assist clients • Knowledgable about the market • Able to provide op'ons for cover – Best-‐fit – Lowest cost
www.tarne'nsurance.com 805-‐375-‐2373 CA LIC 0C75675
E X P O R T T R A D E S E M I N A R
CREATING AN INTERNATIONAL CREDIT POLICY
A/R IS AN IMPORTANT PERCENTAGE OF A TYPICAL COMPANY’S ASSETS
WHR GE CAT NWL DBD HON AVERAGE
A/R 2,038 287,489 18,673 1,112 488 7,429
TOTAL ASSETS 15,396 685,328 88,743 6,222 2,593 41,853
% AR / TOTAL ASSETS 13% 42% 21% 18% 19% 18% 22%
FY 2012 – US Million
A/R
Total Assets
SALES & COLLECTION
• Making sales is important, but collecting on those
sales is critical
• Without sales a company cannot continue to
operate, but a sale is not truly a sale until collected
WHAT IS A CREDIT POLICY?
A Credit Policy can be defined as a
general course of action used to guide
frequently encountered
situations designed to achieve strategic
objectives Credit Management: Principles & Practices, 4th Edition
WHY SOME COMPANIES DON’T HAVE A CREDIT POLICY?
• Sales department exercise control over the credit process
• Management teams not convinced of the value of credit policy (concerned it may stifle sales)
• Senior management lack knowledge or direction on how to write and implement a policy
• Management unwillingness to devote the needed resources to write and implement a policy document.
PROBLEMS BECAUSE LACK OF CREDIT POLICY
• Subjective and inconsistent decisions • Poor communication (internal and external)
• No quantification of analysis • Limited control
• Inadequate visibility and aggregation • Unaware of how to profitably manage
receivables • Reactive mode environment rather than
Proactive mode
REASONS TO HAVE A CREDIT POLICY
• Improve decision making • Clear guidelines for dealing with customers in
credit terms • Provide corporate strategy for credit
operations • Operational guide for credit staff • Elimination of unauthorized special credit deals • Simplifies the work of auditors and compliance
with government issues
Source: FCIB International Credit Policy webinar.
DIFFERENCE BETWEEN CREDIT PROCEDURES AND FORMAL CREDIT POLICY
Credit Policy outlines company’s strategic
and operational requirements from
credit sales
Procedures are the every day working
practices of the credit department: who does what and
how r
Source: FCIB International Credit Policy webinar
WHERE TO START?
WHERE TO START?
• Look beyond individual customers in a way that reflects an understanding of just how credit fits into overall corporate goals
• Policies that guide the credit function are developed and monitored within the context of a corporate strategic-planning framework.
• Specific credit policies and procedures are formulated to achieve corporate goals
Credit Management: Principles & Practices, 4th Edition
SOLID FOUNDATIONS
• Strategic planning is the key ingredient that underlies credit policy and procedures
• Strategic planning entails the coordination of long-range plans with a particular focus upon strategies, controls and desired results
• Link credit policy and procedures closely to cost controls
Credit Management: Principles & Practices, 4th Edition
CHARACTERISTICS OF A CREDIT POLICY
Your policy should keep you competitive while
avoiding unnecessary losses
How your industry works and how your company fits into your industry will have a large affect on your
credit policy
PRINCIPLES TO FOLLOW WHEN ESTABLISHING YOUR CREDIT POLICY
Market Position
Customer Type
Merchandise Type
Markup
Pricing
Product Availability
Location
Financial Strength
Economic Trends
Government Regulations
PRIMARY SECTIONS TO INCLUDE
Mission Statement
Goals
Define Credit Limit Authority
Credit Evaluation
Credit Limits
Terms
Account Monitoring
Credit Hold
Collections
Credittoday.net
GLOBALIZATION
• Globaliza(on is not just a cliché. It is happening all around us as businesses increasingly look at the world as if it had no na(onal
boundaries.
• With globaliza(on, compe((on intensifies. Under these circumstances, the only
companies that will succeed are those that are capable of
providing customers first-‐class products and services, along with
compe((ve payment terms
INTERNATIONAL CREDIT POLICY
INTERNATIONAL PAYMENT METHODS
THE THREE C 'S OF OF INTERNATIONAL CREDIT
• Country (Sovereign)Risk
• Currency Risks
• Cultural Risks
CULTURAL RISK
BASIC TECHNIQUES AND RULES
• Evaluate the stability of the government of the country in which the importer is located and review events that might affect sales to a par(cular foreign country and foreign customers
• Some of the most common barriers or complexi(es associated with expor(ng include: differences in language; credit terms [terms of sale]; shipping terms; and foreign exchange problems
• Understand the local meaning as well as the textbook transla(ons of business terms and terminology
BASIC TECHNIQUES (CONTINUED)
• Become familiar with methods available to mi(gate the risks associated with export sales transac(ons
• Meet with your company's top management to consider profit margins, sales terms, and the amount of risk considered acceptable to the expor(ng company
• Understand your own country's export laws as well as rules and regula(ons and laws in each of the countries you plan to export into
• Credit managers have to take some risks, but they must be calculated risks
MINIMIZE THE RISK
• Request a signed credit applica(on • Obtain and evaluate credit informa(on • Request the most recent financial statements • Request trade references from at least three U.S. trade references -‐ preferably vendors selling in large dollar
• Request bank references, checking accounts, and loan informa(on.
MINIMIZE THE RISK (CONTINUED)
• Get ra(ngs on all the references and keep them updated
• Run a credit report • Establish the terms of sale • Establish the credit limit • Specify in what currency payment will be made • If payment is not in U.S. dollars, include wriSen agreements on the exchange rate
MINIMIZE THE RISK (CONTINUED)
• Get the customer's agreement to credit terms in wri(ng
• Make sure the credit terms are also printed on the invoice
• Stay current in world affairs • Monitor media coverage of the customer's country
• Study the demand for the product shipped • Be aware of how (tle passes
SOURCES OF INFORMATION
• Interna(onal Trade Administra(on (ITA) • FCIB / NACM • EXIM Bank • World Bank • Graydon, D&B, Coface, CrediSoday, Atradius • The Economist, Bloomberg-‐Businesweek, Barron’s, Financial Times, WSJ
THANK YOU
Diego Jiménez, CICP ICCE djimenez@accuride.com
Presented By Tim Bastian, International Certified Credit
Executive
} Non-Financial Companies have three FX risks to manage.
1. Transactional Risk- Contract Import and export activity as well as borrowing or lending in foreign currencies.
2. Operational Risk – Future operational cash flows from non-contract business.
3. Translation Risk – From the financial statement rollups in multi-national companies to a single currency.
Political Risk Country Economic Outlook
Inflation Deflation
Timing
Margins
Volume
} As a U.S. retailer, your supplier for swim suits is in Brazil whom is seeing 13% inflation, while the dollar remains stable. The supplier is under pressure to raise prices. Options:
A. If you have a contract in dollars, the supplier would need to look at offsets to his increasing cost. (hedges/swaps)
B. If no contract, your price may go up or you may need a different supplier to maintain your cost.
} You are selling machined goods to Mexico with the sale in Dollars and while you have your invoice out, the Dollar strengthens against the Peso.
1. It will cost your customer more money to pay you.
2. The customer may try to hold funds up hoping for a correction to the exchange rate between the Peso and the Dollar.
} Solutions: 1. You can discuss simple solutions with your
customer. A pre-payment will lock their Peso cost to Dollar at quoted levels through delivery.
2. Credit insurance options to protect from defaults resulting from currency shifts.
1. Always Hedge to the risk not for profit. 2. When getting FX quotes from your banker
make sure you ask for the buy/sell rates together to get the best price on order. Example: Buy/Sell Dollar to Yen, 1 Million. This way you learn the spread between currencies and do not over pay in either direction.
} FCIB Membership – Courses and a web based Knowledge Center with solutions made available to you.
} Your Accountant that has international experience.
} Your Attorney with international trade experience.
} Your Banker who has an International Currency trading desk and international banking experience.
} U.S. Department of Commerce – Commercial Import/Export Department.
} Your Insurance Broker (some major insurers can provide solutions for international FX risks.)
} Foreign FX strategies to determine risk and what the best method to offset those risks is a complicated subject that can not be learned from a short seminar, use your team of international professionals and other resources to best determine what will work for your situation.
Thank you to all of the sponsors of the event.
SAVE THE DATE For FCIB’s 24th Annual Global
Conference!
September 15-17, 2013 at the Hyatt Regency Philadelphia, Pennsylvania
Financial Support for Exports
Export-Import Bank of the United States
Who We Are
▪ Mission – To create and sustain jobs by increasing U.S. export sales
▪ Official Export Credit Agency (ECA) of the U.S. Government since 1934
▪ 85% of all transactions are to small businesses
▪ Target 20% of all authorizations to small businesses
▪ Self-sustaining
Ex-Im Supports a Variety of Industries
▪ Manufacturing
▪ Construction
▪ Medical
▪ Mining
▪ Power-generation
▪ Aircraft and Avionics
▪ Services
▪ Renewable Energy
▪ Agribusiness
▪ Wholesale/Retail
▪ Oil and Gas
Open in Over 155 Countries
1. Brazil 2. Colombia 3. India 4. Indonesia 5. Mexico 6. Nigeria 7. South Africa 8. Turkey 9. Vietnam
Working Capital Guarantee on Exporter Loans
Medium and Long Term Insurance & Guarantees on Buyer Loans
Pre-Export Post-Export
Exporter Finance Chain
Export Credit Insurance on Buyer Credit
Working Capital Guarantee—Basic Parameters
90% guarantee on principal and interest for export-related inventory and A/R
– Guarantee also covers certain liquidation costs
Generally one year or less Must be fully collateralized Covers exporter performance risk
Note: Provides no protection to exporter against foreign buyer non-payment
Benefits to Exporter/Borrower
• Finance foreign a/r to generate additional working capital
• Finance costs of new, foreign POs
▪ Generate additional Gross Profit Margin by increasing foreign sales
▪ Incentivize your Banker to issue Standby L/Cs covering your Advance Payment Guarantee, Bid/Tender Bond, or Performance Bond for only 25% (10% by special circumstance) cash collateral.
Working Capital Guarantee for Exporter
TO QUALIFY: • Three years in business • One year exporting • Positive net worth, profitable prior year • Minimum Financial Requirements:
– Current Ratio – Net Sales / Total Assets – Debt to Worth – (Net Profit + Depreciation, Depletion, & Amortization
Expense) / Current Portion of Long Term Debt – EBIT / Interest – Cost of Sales / Inventory; and – Sales / Accounts Receivable
Global Credit Express – Term Sheet
Borrower: A U.S. company exporting U.S. goods/services Purpose: for finance of the business of exporting rather than specific export transactions Amount: Max. $500,000 Type: Line of credit Period: six months or one year Interest Rate: Ex-Im CIRR* + 2.6% p.a. fixed Fees: $500 Application; $2500 Referral Fee; 2.5% flat Exposure Fee on amount of Line of Credit; Legal Fees est. $150 0 -$3000 *CIRR: currently 1.39% fixed; see http://www.exim.gov/tools/commercialinterestreferencerates/
Global Credit Express – Term Sheet (2)
Collateral: (i) a first or second perfected security interests in the general assets of the Borrower. (ii) owner(s) with 20% or more ownership provide personal guarantee(s) Documentation: (i) Application Package, (ii) Ex-Im Commitment Letter w/Term Sheet, (iii) Loan, Credit and Guarantee Agreement; (iv.) Promissory Note.
Global Credit Express – Eligible Borrowers
• is a small business by SBA definition • min. three years of revenue producing operations • one year of exporting experience • no tax liens or judgments • exports goods made in USA or services performed
by U.S. citizens • possesss a business FICO score of 180 or higher
Export Credit Insurance Exporter Benefits: • RISK PROTECTION: Protects the exporter against non-payment by their foreign buyers • MARKETING TOOL: Enables the exporter to extend open account credit terms to new and existing foreign buyers • FINANCING AID: Allows lenders to add insured, foreign receivables into the borrowing base
Single-Buyer, Single Country Small Business Multi-buyer Small Business Multi-buyer – Express Insurance Standard Multi-buyer ___________ A small business is defined by the Small Business Administration at this site: http://www.sba.gov/size-standards-tool?ms=nid4060 In addition, Ex-Im provides its Small Business policies only to those Small Businesses who had average $7.5 mm or less export sales on credit terms over the past three years.
Short-Term Policy Types
Exporter Qualifications to apply for Small Business or Standard Multi-buyer Policy:
1. In same line of business for at least three years. 2. Have at least one year of exporting experience. 3. Had an operating profit in their most recent fiscal year. 4. Dun & Bradstreet Paydex of 50 or higher and no derogatory information. 5. Signed financial statements for the last fiscal year that show positive net worth. Net Worth at the most recent fiscal year-end is at least 10% of requested policy limit. 6. No material adverse issues.
Export Credit Insurance
Cost for a Policy Quote: $ - 0- Cost for a one-year Policy: $ -0- Cost to insure a Buyer: about $.65 per US$100.00 Information Needed on the Buyer:
$100,000 – a credit report $250,000 – credit report and two trade
references $300,000 – financial statements on Buyer
Coverage Amount: 90%/95% Claim Window: 90 – 240 days from invoice due date
Medium & Long Term Buyer Loan Insurance/Guarantees
For international buyers purchasing U.S. capital equipment and services:
▪ 85% financed, 15% cash down payment ▪ Medium-term – Repayment typically up to 5 years and
amounts up to $10 million ▪ Long-term – Greater than 5 years and over $10 million
M/T Insured Foreign Buyer Loan – the structure
• U.S. Exporter, a manufacturer of capital equipment whose
• Foreign Buyer, who wants to finance the purchase with “Customer Finance”.
• Commercial bank, or “lender”, providing a loan to the Foreign Buyer, and cash to the U.S. Exporter, which loan’s principal and interest payments are:
• Insured (or guaranteed) by Ex-Im Bank of the U.S.
M/T Insured Foreign Buyer Loan – Eligible Borrowers/Buyers
• Minimum operating history of 3 years • Current financial statements with Notes: • Loans under $1 million: signed, unaudited • Loans over $1 million: CPA audited,
international accounting standards • Borrowers w/annual sales <US$50 million
equivalent may require owner(s) Guarantees • Financial condition, evidenced by financial
statements, yield financial ratios per “Medium Term Credit Standards”, see:
http://www.exim.gov/tools/upload/ebd-m-39-1.pdf
M/T Insured Foreign Buyer Loan – Eligible Borrowers/Buyers (2) i.e., “loan package”
• Credit agency report – favorable • Commercial banking reference • Positive operating profit and net income, past two
years • Positive cash flow, past one year • Total Liabilities no more than 1.75x tangible net
worth • Amount of credit is no more than 40% of tangible
net worth • Interim statements disclose no deterioration
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Call Ex-Im Bank Regional Export Finance Center nearest your location:
Irvine, CA: 949-660-1341
David Josephson, Western Regional Director (949) 660-0726 Direct David.josephson@exim.gov www.exim.gov
More Information
U.S. Small Business Administration International Trade Finance Programs
Trade Connect Export Workshop Los Angeles Area Chamber f Commerce
May 8, 2013
Martin Selander International Trade Specialist U. S. Small Business Administration U. S. Export Assistance Center 2303 Martin Court #315 Irvine CA 92612 (949) 660-8935 Serving exporters of Southern California, Nevada, and Hawaii
SBA Los Angeles District Office 330 North Brand Blvd #1200 Glendale CA 91203 (818) 552-3210
SBA Santa Ana District Office 200 West Santa Ana Blvd #700 Santa Ana CA 92701 (714) 550-7420
Additional information available
on line
www.sba.gov/oit
Including copies of all required application forms, program info
and national staff directory
Export Working Capital Program
SBA Export Express
International Trade Loan
SBA Export Finance Assistance Programs:
Pre-Shipment Guarantee Loan proceeds to acquire/produce goods or services for export
Post-Shipment Guarantee Discounting accounts receivable
Export Working Capital Program
Short Term +Transaction Based Loan repayment from assignment of payment proceeds from foreign buyer: -Letter of Credit
-Open Account
Unlike more traditional financing, loan repayment not based upon borrower cash flow or profitability
Export Working Capital Program
Single Transaction or Revolving Credit Line.
Disbursements must be linked to specific export transaction, contract, PO, LC, invoice, etc.
Maximum gross loan limit $5,000,000. (no minimum). Maximum 90% SBA guaranty to the lender
Export Working Capital Program Features
Negotiable between applicant and lender SBA fee is one quarter of 1.00% of the SBA guaranteed portion for 12 months or less Example
$100,000 loan x 90% SBA guaranty =$90,000 SBA guaranteed portion x0.25% =$225.00 fee due from borrower
Export Working Capital Program Interest Rates & Fees
A) UCC lien on raw materials-inventory purchased with SBA funds
B) Assignment of contract proceeds
C) Personal guaranty
D) Additional collateral may be required on a case-by-case basis.
Export Working Capital Program Collateral
Exporter must demonstrate ability to perform / i.e. in business 12 months (Note other “non-export” SBA loans are available from SBA District Office)
Minimal collateral
Service & Trading companies are eligible
Country limitation schedule
Credit Insurance
Applications processed at SBA USEAC
Export Working Capital Program Eligibility & Features
Provides financing to small businesses whose borrowing needs are too small to be profitably met by traditional SBA programs
“Small” = maximum loan $500,000 (no minimum)
Flexible use of proceeds
SBA Export Express
No SBA application forms No SBA underwriting or credit
review (eligibility review only) “Application” faxed or emailed by
bank to SBA national processing center in Sacramento
SBA turnaround 24-48 hours
SBA Export Express Incentives/Advantages
Lender to obtain a brief narrative from applicant to clarify how loan proceeds will be utilized.
Applicant in business for at least 12
months. Proceeds are to be used to develop or
expand applicant’s export markets.
SBA Export Express Eligibility
n Finance Export Development activities supported by U.S. Department of Commerce Commercial Service: Gold Key, ICP, etc
n Other marketing costs such as participation in a foreign trade show or translation of product literature for use in foreign markets.
n Real Estate acquisition or construction to support production of goods for export.
n Acquisition of machinery or equipment (i.e. computers, forklifts, etc) to be used in the production of goods for export.
n Permanent long term working capital infusion
SBA Export Express Use of Proceeds
Maximum loan amount $5,000,000
Applicant must establish that the loan proceeds will expand an existing export market or develop new ones
Provides long term financing for small business engaged or preparing to engage in exporting
Examples: purchase fixed assets, such as land and building, expand or renovate existing facilities, purchase machinery and equipment, permanent working capital, debt refinance in limited cases
Application package must be submitted from lender to SBA (does not allow for streamlined faxing of application as in the Express program)
The International Trade Loan
Martin Selander International Trade Specialist U. S. Small Business Administration U. S. Export Assistance Center 2303 Martin Court #315 Irvine CA 92612 (949) 660-8935 Serving exporters of Southern California, Nevada, and Hawaii
FOREIGN AGRICULTURAL SERVICE United States Department of Agriculture
EXPORT CREDIT GUARANTEE PROGRAM
GSM-102
FACILITATING TRADE
FINANCE
WHAT IS GSM-102?
GSM-102
• It’s not a loan…
• It’s not a grant…
• It’s a guarantee
Backed by the full faith and credit of the United States Government
PURPOSE OF THE PROGRAM
Promotes the export of U.S. agricultural products by facilitating the
financing component via a credit guarantee.
USDA guarantees the letter of credit to emerging markets where sales may not occur without the financing and guarantee.
GSM-102
PROGRAM DESCRIPTION
Objective
• Protects U.S. exporters or U.S. banks against the non-payment of the importer’s foreign bank under a Letter of Credit (L/C)
Terms
• Guarantees up to 98% of the loan principal • Covers a portion of the interest • Fees are based on country risk and length of financing • Fees dependent on frequency of principal repayments
Coverage
• Coverage up to 2 years • Over 190 agricultural products • Freight costs are usually covered • Over 140 banks covered in almost 80 countries
GSM-102
PROGRAM PARTICIPATION
• Approved Countries/Regions
• Approved Foreign Banks
• Qualified U.S. Exporters
• Approved U.S. Banks
• Importers do not need to be approved
GSM-102
• Not just for bulk commodities • High-value processed products are also covered
• Not just for large corporations • Approximately 47% of participants are SME’s
• Not just for large dollar transactions • Transaction sizes have no minimum. Many are under $1 million USD
GSM-102 is…
MISCONCEPTIONS
GSM-102
Consumer-ready - Intermediate - Bulk
ELIGIBLE COMMODITES
ü 100% produced in USA
ü High-Value products (90% U.S. Content)
GSM-102
HOW MUCH IS THIS GOING TO
COST? Guarantee fee (fully transparent)
Cost of L/C
Financing costs
GSM-102
COMPARISON GSM-102
WITHOUT GSM-102
WITH GSM-102 U.S. exporter reluctant to
ship without being paid in advance Bank in region may be unwilling to provide credit to importer Any financing to importer may have very short repayment terms & higher interest rates
U.S. exporter more likely to ship since USDA carries 98% of the risk and payment is received upon presentation of documents
Presence of loan term extended by the U.S. bank to the foreign bank may encourage extension of credit by the foreign bank to the importer
Importer now in better position to negotiate favorable loan terms with GSM-approved bank in the region
BENEFITS TO AN EXPORTER
§ Open new markets and expand sales where risk may be greater
§ Minimal cost – fees average about 1 percent
§ Reduce importer and foreign bank risk
§ Get paid quickly by assigning guarantee to U.S. bank and
delivering shipping documents that conform with L/C
§ Ability to lower all-in-costs to the buyer
GSM-102
Foreign Bank
Less risk – USDA assumes almost all risk in
the event of nonpayment
Ability to leverage country & foreign bank limits
Reduce capital requirements due to USDA guarantee
Ability to lend at reduced rates because of
USDA guarantee
Ability to lend up to 2 years
BENEFITS TO U.S. BANKS
Establish or improve correspondent banking
relationships
Service U.S. exporter clients & expand relationships
GSM-102
12
HOW TO GET STARTED?
Exporter
Get a DUNS number
Submit qualification application
Negotiate sales contract with
buyer
Submit request for guarantee/pay guarantee fee
Contact U.S. bank (if assigning guarantee)
GSM-102
13
HOW TO GET STARTED?
Provide most recent audited financial statements
Documentation from federal or
state agency regulator
Identify shareholder ownership & management
Contact information of
principal and U.S. regulator
U.S. Bank
GSM-102
Africa & Middle East
Central America
Caribbean
Central Asia
Mexico
China
Russia
South America
South Korea
Southeast Asia
Vietnam
Turkey
MARKETS GSM-102
2007 2008 2009 2010 2011 2012 Claims Registrations
.26% 4.23% 5.23% .49%
$5.32 billion
$1.44 billion
$3.09 billion
$4.12 billion $4.13 billion
$3.11 billion
REGISTRATIONS (USD BILLIONS) GSM-10
2
GLOBAL USAGE FY 2011 – 2012 (in USD millions)
+Eurasia Region discontinued in 2012
0
200
400
600
800
1000
1200
2011 2012
$ U
SD
Mill
ions
GSM-102
Soybeans 26%
Yellow Corn 20%
Wheat 18%
Soybean Meal 11%
Cotton 6%
Rice 3%
Breeding Cattle 3%
Beef 2%
Other 11%
TOP COMMODITIES
FY 2012
GSM-102
FY 2013 PROGRAMMING
Country/Region ($5.5 Billion per Farm Bill)
Africa/Middle East Region $ 400 Million
Caribbean Region $ 300 Million
Central America Region $ 550 Million
Central Asia Region $ 50 Million
China Region $ 200 Million
Korea, South $1,000 Million
Mexico $ 400 Million
Russia $ 250 Million
South America Region $ 600 Million
Southeast Asia Region $ 450 Million
Turkey $ 700 Million
Vietnam $ 100 Million
Reserve $ 500 Million
TOTAL: $5.5 Billion
GSM-102
FOREIGN AGRICULTURAL SERVICE United States Department of Agriculture
ADDITIONAL INFORMATION
Teri Ryan
202.720.0663 teri.ryan@fas.usda.gov
www.fas.usda.gov/excredits/ecgp.asp
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