The COVID-19 crisis and its affect on the supply chain underscored the reality that, today, economies are interdependent. When one begins to fail, others follow. Yet, isolating your company from the rest of the world doesn’t help. In fact, most economies can no longer count on domestic markets alone to keep them healthy or help them grow. They need to encourage and assist their local businesses to trade across borders. For companies to grow and create jobs locally, they must be able to reach customers globally.
If your company hasn’t yet ventured into foreign markets, there’s a U.S. government agency that provides financial services that can help you find success as an exporter, the Export-Import Bank of the United States.
As a caveat to this article, the Export-Import bank has undergone a significant amount of change in the past five years resulting in structural realignment and a down-spike in the number of authorized transactions the bank could justify since 2015. These changes were the result of a lack of quorum within the board of directors, who are the sole voices approving transactions larger than $10 million. Due to this disruption, much of the scope of the Export-Import bank had been scaled back during 2015-2018, further reflected in their annual report data.
EXIM Bank: Helping U.S. Exporters Succeed
The Export-Import Bank of the United States helps U.S. companies compete in foreign markets on a level playing field by offering export credit services, working capital loan guarantees, alongside many other export protections.
U.S. based companies can maximize their export opportunities through EXIM taking on the credit and country risks that the private sector cannot. By working to match the financing that other governments provide to their exporters, the EXIM Bank helps level the playing field for exporters of U.S. goods.
In order to apply for a medium- or long-term guarantee, one can visit their local EXIM Bank office for a free consultation with an trade finance manager. Once there, the application process can end in one of three ways:
- Preliminary Commitment (PC): In certain cases, EXIM Bank will accept an application for a preliminary commitment (PC). A PC is a commitment from EXIM Bank that the borrower’s needs, as outlined in the application, generally meet EXIM Bank’s financing requirements.
- Letter of Interest (LI): If the contract has not been awarded, then a lender, an exporter or an international borrower may request a nonbinding letter of interest (LI) containing EXIM Bank terms for the specific transaction. The LI is processed within seven working days, is valid for six months, and can be renewed.
- Final Commitment (AP): When the contract between the exporter and buyer has been awarded, either the lender or buyer can submit the guarantee application.
Trade credit insurance through EXIM is a policy that serves to protect exporters’ accounts receivable by guaranteeing up to 95% of their potential losses from buyer non-payment. Moreover, EXIM offers foreign currency guarantees wherein the obligor can repay the funds in the same currency as their revenue stream, regardless if the currency is hard (stable over time) or soft (tending to fluctuate).
How EXIM Bank Supports U.S. Exporters
The U.S. Export-Import Bank provides a number of services that assist exporters. Below are the most utilized services:
- Export Credit Insurance: Provides payment coverage for both commercial (i.e. bankruptcy) and political risk (i.e. war or the inconvertibility of currencies). This enables the exporter to sell on “open account” terms to international buyers, rather than requiring cash in advance or expensive, complicated letters of credit. The insured foreign receivables can be used to increase the exporter’s credit lines, thereby accelerating their cash flow.
- Working Capital Guarantees: Allow exporters to obtain working capital loans of which EXIM Bank guarantees 90%. EXIM Bank’s Delegated Authority Lenders evaluate eligibility against EXIM Bank’s requirements and expedite the loan process. There is a lower collateral requirement for bid bonds, performance bonds, or advance payment guarantee through EXIM’s working capital guarantees.
- Medium and Long-Term Loan Guarantees: Help exporters secure competitive, term financing for their international buyers. They guarantee loan financing up to 10 years to the creditworthy international buyers in in both private and public sectors, as well as finance the local costs as much as 30%. There are no limits on transaction size, with coverage for 100% of potential commercial and political risk.
- Project and Structured Finance: Offered through EXIM to help U.S. exporters succeed in natural resources and infrastructure sectors. Limited recourse financing, or project financing lends to newly created project companies who purchase U.S. exports, without any country or project cost limit. Structured financing helps existing companies borrow based on their creditworthiness.
- Finance Lease Guarantees: Help exporters secure competitive financing for international buyers that prefer lease financing to installment loans. This not only enables international lessees to obtain finance leases from lessors, but also allows for flexible financing options and payment plans, a transaction size of up to $10 million, and coverage up to 85% of the contract value.
- Supply Chain Finance Guarantees: Offered to lenders (banks, finance companies, etc.), support U.S. exporters and their suppliers utilizing accounts receivable financing. These guarantees are designed to inject liquidity and provide suppliers, particularly small businesses, quicker access to capital at a lower cost. The program works through U.S. suppliers selling their accounts receivable to private sector lenders at a discounted rate, easily converting accounts receivable into cash in order to obtain early payment of their invoices.
EXIM Bank’s Support for Small Business
EXIM Bank’s Global Access for Small Business program is dedicated to creating and maintaining U.S. jobs by dramatically increasing the number of small businesses that are exporting goods or services. It is aligned with former President Barak Obama’s 2010 National Export Initiative goal of doubling U.S. exports over 5 years.
The program’s small business products are designed for companies that meet the Small Business Administration’s definition of a small business. To be eligible, the goods or services must be produced with more than 50% U.S. parts and labor. EXIM Bank also has a business development team devoted exclusively to small, woman and minority-owned business enterprises.
At the end of FY 2015, EXIM’s small business goals shifted to realign with congressional mandates and the lack of board quorum. Because there was no board of directors to approve transactions above $10 million, the Bank looked to attract and retain as many small business customers as possible to fill the gap in transactions. The congressional mandates EXIM adhered to states that no less than 25% of total EXIM authorizations be allocated to small businesses.
In 2018 EXIM made it a goal to quadruple their retention rate of small sized businesses in their FY 2018 plans. They ended up retaining 80% of their small business transactions, which is lower than the previous year at 85%. With that being said, even though EXIM missed its target that fiscal year they still managed to improve on their ranking each year from 2015 to 2018.
Other EXIM Programs
Although EXIM’s main focus is servicing the U.S. export market, they provide resources of all kinds for insurance agents, including brokers, lenders, Congressional and Government stakeholders and U.S. product importers.
- Brokers: Seeing as EXIM’s registered brokers sell and service export credit insurance services, the bank established a portal for brokers to gain expertise about the public and private credit insurance products. Some areas of interest within the portal include case studies for selling export insurance, policy forms and applications, country limitation schedules, and an EXIM Online (EOL) user guide for reporting shipments, overdue receivables, and applications for special buyer credit limits.
- Lenders: EXIM provides lenders with the resources needed to finance a transaction involving a higher country risk, alongside assuming a large portion of that risk for the lender. The funds lenders borrow can be used to acquire meet their customers need for export financing, limit a particular country risk, increase their loan profile, ease bank regulatory requirements, and sell and transfer EXIM-supported loans to third parties.
- Congressional and Government Stakeholders: The United States Office of Congressional and Intergovernmental Affairs (OCIA) is the primary contact office for both Congress and the EXIM Bank. On July 20, 2015 there was a lapse in operating authority to conduct new business at the Export-Import bank due to a lack of quorum amongst the board members. Simply put, there were fewer than three board members appointed at the time and EXIM’s ability to render decisions regarding financing accounts larger than $10 million became nullified. On May 8, 2019 the United States Senate confirmed in a bipartisan vote three nominees to the EXIM board, picked by then President Donald J. Trump, which in effect brought full operating authority back to the Bank. Two of the appointees have terms lasting until 2021, while the third’s term lasts until 2023. There is also pending Senate action to add two additional members to the EXIM board as an assurance quorum is solidified.
- U.S. Product Importers: EXIM supports the purchase of U.S. made products by creditworthy, foreign buyers that cannot get traditional trade financing in their own country. The Bank guarantees up to 85% of the contract amount in medium- and long-term financing, covers 100% of loan guarantees, and offers medium-term insurance policies to importers.
Other Government Departments Providing Support to Small Business Exporters
- Overseas Private Investment Corporation (OPIC)
- U.S. Department of Commerce
- U.S. Small Business Administration
- United States Trade and Development Agency (USTDA)
Facts about the Export-Import Bank
- In FY 2020, the Bank authorized $5.4 billion in U.S. export transactions, which included an amendment to the previously approved largest deal in EXIM’s history–$4.7 billion in financing to support U.S. exports of goods and services to the Mozambique Liquefied natural gas (LNG) project.
- EXIM Bank’s charter, which Congress renewed back in 2015, requires the bank to report on progress in differing areas of the Bank’s activity, such as the following: Small and medium sized businesses EXIM has authorized, private sector participation, industry sectors for businesses given authorizations, sub-Saharan African support, and lastly environmentally beneficial reports.
- EXIM Bank operates in accordance with the terms and conditions of the Organization for Economic Co-operation and Development (OECD) Arrangement on Officially Supported Export Credits. The Arrangement is intended to provide a level playing field so that OECD exporters compete on the price and quality of their goods and services, not on the financing terms.
- In FY 2020 EXIM’s authorizations supported an estimated 37,000 American jobs.
- The Export-Import Bank of the United States has been twice awarded “Best Global Export Credit Agency (ECA)” and four times consecutively named “Best ECA in the Americas” by Trade Finance magazine, a global publication concentrating exclusively on the international trade finance market.
- EXIM Bank was also recognized as the World’s “Best Export Credit Agency” Trade and Forfaiting Review magazine (TFR). TFR is a leading trade and supply chain finance information resource.
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