Export Financing - What is It?

This page is about export financing and it is designed to introduce you to a well known financial facility that helps meet the ever increasing international trade finance demands of international traders by freeing-up their funds involved in international trade transactions.

Export financing provides exporters who have orders from customers abroad with the necessary financial backing to provide their overseas customers with the most favorable and competitive international trade finance credit terms.

Borrowers have a variety of international trade finance funding options through the wide range of funding programs offered that can provide them with the flexibility they need to increase their profits and decrease transaction costs.

What Are The Advantages Of International Trade Finance?

  • Allows your company to expand its market share with limited risk.

  • Minimal paperwork.

  • Quick turnaround time.

  • No importer underwriting.

  • Allows you to provide flexible credit terms to international buyers that can increase your export sales.

  • Provides a source of funding for companies that may not qualify for traditional financial backing of its foreign receivables.

  • Export Financing can be arranged for up to 65% with a promissory note from the Importer - or 98% with a Letter of Credit. This can provide you with sufficient financial strength to sell larger orders than you might otherwise be able to on your own financial strength.

  • Exporting may be on an OPEN ACCOUNT (with 65% coverage) with your foreign customers - allowing your buyers to increase their purchasing power and requiring only a promissory note.

What Size Transactions Can Be Financed And How Are They Handled?

Any size of transaction, small or large, can qualify for international trade finance funding.  The exporter will apply for a USDA guarantee for a particular sale.

What Are The Costs For International Trade Finance?

Costs usually involve an application fee and a monthly rate for the outstanding duration of the loan. 

What Type Of Company Benefits Most?

Companies seeking to grow market share by exporting their goods into international markets, but that are unwilling to assume the economic and/or political risks of non-payment.  The typical user may not wish to grant open credit to its foreign buyers or, if it does, may not qualify for traditional international trade finance funding of its foreign accounts receivable.

What Type Of Loans Are Available?

The most popular programs involve either: (1) loan terms of up to 180 days, covering 65% of the risk of importer default and requiring only a promissory note from the importer; or, (2) loan terms of up to 10 years, covering 98% of the risk of importer default and requiring a foreign bank letter of credit from the importer.

How to Get Immediate Export Financing for Export Credit Sales

For the last 20 years, the USDA has provided US exporters with international trade finance guarantees for their export credit sales to help domestic companies compete with foreign suppliers and allow them to increase sales into countries where it might not be possible without the added security of the guarantees. 

While the original programs offered long-term coverage and used foreign banks letters of credit as security, changes in the international trade finance market mandated a new type of guarantee based on shorter credit terms and cheaper payment mechanisms.

Included among these changes in the market was a significant increase in the sale of high-value and consumer oriented products, which are generally shipped in smaller quantities and more frequently than bulk products, which had declined in sales in the same period of time. Also, there was a large shift in foreign import markets from state trading monopolies to smaller, private sector buyers with a wide range of funding needs. 

The USDA met these new market demands with the Supplier Credit Guarantee Program which provides guarantees to suppliers of US commodities being exported to developing countries on credit terms less than 180 days. By offering the exporter a 65% guarantee of his export credit sales price through international trade finance and requiring only a promissory note from the importer, the program allows US suppliers to accommodate the needs of their smaller buyers to whom more and more sales are going. 

At the same time, the 35% risk maintained by the exporter allows the USDA to approve guarantee applications quickly and without any importer underwriting as they entrust exporters to do all the necessary due diligence. However, many exporters, while desiring to provide the most beneficial export credit terms to their buyers, still cannot afford the delay in payment for their sales for the entire duration of the credit term. Others simply want additional liquidity more rapidly.

The business that gave us the content for this article provides funding for exactly this eventuality. By assigning the USDA guarantee to this business, exporters can now receive immediate funding secured by the USDA guarantee, rather than waiting until the end of the credit period to receive cash.

Thank you for your interest in Export Financing

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