Government Export Financing Programs

Ex-Im Bank is an independent agency of the U.S. government.

The overall purpose of which is to:- Aid in financing - Facilitate trade between the United States

and other countries

Export-Import Bank Export-Import Bank of the United Statesof the United States

Ex-Im Bank has three main functions:1. Provide guarantees and export credit

insurance so that exporters and their bankers give credit to foreign buyers

2. Provide competitive financing to foreign buyers

3. Negotiate with other countries to reduce the level of subsidy in export credits

Export-Import Bank Export-Import Bank of the United States (cont.)of the United States (cont.)

OECD guidelines on export credits: A minimum of 15 percent of the contract price to be paid in

cash Maximum repayment term of eight and a half years, with

exceptions for poor countries Minimum interest rates for set periods of up to five, eight and

a half, and ten years Gradual abolition of subsidized interest rates and adjustment

of discount rates for aid loans to better reflect market realities The establishment of related conditions for certain sectors,

including agriculture, that are not covered by the guidelines

Export-Import Bank Export-Import Bank of the United States (cont.)of the United States (cont.)

Ex-Im Bank’s financing programs: Working capital loan guarantees for U.S. exporters Credit insurance Guarantees of commercial loans to foreign buyers Direct loans to foreign purchasers

Ex-Im Bank Ex-Im Bank

Criticism of Ex-Im Bank: Loans/loan guarantees for projects that harm the

environment The bank’s assistance is largely provided to a small

number of large U.S. firms such as Boeing, Bechtel. Loans to foreign companies have contributed to harm

domestic industries.

Ex-Im Bank (cont.) Ex-Im Bank (cont.)

Foreign content policy: Items must be shipped from the United States and the foreign content (cost of foreign components incorporated in the item in the United States) must be less than 50 percent of the total cost to produce the item.

Repayment terms: Repayment usually begins about six months after shipment or project completion, and payments of principal and interest must be made semiannually.

Ex-Im Bank Criteria for Loans Ex-Im Bank Criteria for Loans and Loan Guaranteesand Loan Guarantees

Scope of coverage: Ex-Im Bank’s loans, guarantees, and intermediate-term insurance cover 85 percent contract price. The foreign buyer is required to make a 15 percent cash payment.

Interest rates and shipping: Interest rates and maximum maturity terms are subject to OECD guidelines.

Ex-Im Bank Criteria for Loans Ex-Im Bank Criteria for Loans and Loan Guarantees (cont.)and Loan Guarantees (cont.)

This enables exporters to meet critical pre-export financing needs, such as inventory build up or marketing.

Ex-Im Bank will guarantee 90 percent of the loan provided by a qualified lender. The guarantee has a maturity of twelve months and is renewable.

Working Capital Working Capital Guarantee ProgramGuarantee Program

Working Capital Without Ex-Im Bank

Collateral Amount Advance Rate Borrowing Base Advance Rate Borrowing Base

Export inventory supported

by an export order

Raw materials 300,000 20% 60,000 75% 225,000

Work

in process 300,000 0% 0 75% 225,000

Finished

goods 600,000 50% 300,000 75% 450,000

Foreign account

receivable (FAC)

FAC 500,000 0% 0 90% 450,000

L/C backed

account

receivable 600,000 70% 420,000 90% 540,000

Table 14.3 Increased Borrowing Capacity under the Ex-Im Bank Working Capital Guarantee Program

Working Capital With Ex-Im Bank Guarantee

Total Borrowing Base 780,000 1,890,000

Increase Borrowing Capacity Under the Ex-Im Bank Increase Borrowing Capacity Under the Ex-Im Bank Working Capital Guarantee ProgramWorking Capital Guarantee Program

Working Capital Working Capital Guarantee Program (cont.)Guarantee Program (cont.)

Short-term single-buyer policies Short-term multibuyer policies Small business policy Small business environmental policy Financial institution buyer credit policy The bank letter of credit policy Financing and operating lease policy

Export Credit Insurance ProgramExport Credit Insurance Program

U.S. contents requirements: The products sold must be produced in the United States.

Restrictions on sales: ECIP may not be provided for exports destined for military applications (with some exceptions) or to communist nations.

Highlights: Export Credit Highlights: Export Credit Insurance ProgramInsurance Program

The program provides repayment protection for private-sector loans to creditworthy buyers of U.S. goods and services.

Special coverage exists for U.S. or foreign lenders on lines of credit extended to foreign banks or foreign buyers.

GuaranteesGuarantees

Guarantees (cont.)Guarantees (cont.)

Credit Guarantee FacilityCredit Guarantee Facility

This is an intermediate/long-term loan provided to creditworthy foreign buyers for the purchase of U.S. capital goods and services.

Direct Loan ProgramDirect Loan Program

Direct Loan Program (cont.)Direct Loan Program (cont.)

Guarantees loans to small businesses that are already engaged or plan to engage in international trade as well as those that are adversely affected by import competition

International Trade Loan ProgramInternational Trade Loan Program

The SBA provides certain programs for small business exporters.

- Export working capitalThis guarantees short-term working

capital loans to U.S. small business exporters.

Small Business AdministrationSmall Business Administration

A self-supporting agency of the U.S. government that:Is owned by U.S. governmentProvides insurance for private investment

in LDCs (covers currency inconvertibility, expropriation, political violence, etc.)

Provides project financing through loans and loan guarantees

Insures a broad range of risks

Overseas Private Investment Overseas Private Investment Corporation (OPIC)Corporation (OPIC)

Owned by private investorsProvides loans to foreign buyers for

purchase of U.S. goods and servicesTo be guaranteed by Ex-Im BankSuitable for high cost purchases

Private Export Funding CorporationPrivate Export Funding Corporation

The USDA provides financial support for export of U.S. agricultural products through GSM-102, GSM-103, and Public Law 480.

U.S. Department of AgricultureU.S. Department of Agriculture

States provide different programs to expand exports: loans, loan guarantees.

They also act as delivery agents for Ex-Im Bank programs.

State and Local Export State and Local Export Financing ProgramFinancing Program