Exporters naturally want to get paid as quickly as possible, and importers usually prefer delaying payment at least until they have received and resold the goods. Because of the intense competition for export markets, being able to offer good payment terms is often necessary to make a sale. Exporters should be aware of the many financing options open to them so that they may choose the one that is most favorable for both the buyer and the seller.

An exporter may need (1) preshipment financing to produce or purchase the product or to provide a service or (2) postshipment financing of the resulting account or accounts receivable, or both. The following factors are important to consider in making decisions about financing:

The creditworthiness of the buyer directly affects the probability of payment to the exporter, but it is not the only factor of concern to a potential lender. The political and economic stability of the buyer's country also can be of concern. To provide financing for either accounts receivable or the production or purchase of the product for sale, the lender may require the most secure methods of payment, a letter of credit (possibly confirmed), or export credit insurance.

If a lender is uncertain about the exporter's ability to perform, or if additional credit capacity is needed, a government guarantee program may enable the lender to provide additional financing.

For assistance in determining which financing options may be available, the following sources may be consulted:


Exporters need to weigh carefully the credit or financing they extend to foreign customers. Exporters should follow the same careful credit principles they follow for domestic customers. An important reason for controlling the credit period is the cost incurred, either through use of working capital or through interest and fees paid. If the buyer is not responsible for paying these costs, then the exporter should factor them into the selling price.

A useful guide for determining the appropriate credit period is the normal commercial terms in the exporter's industry for internationally traded products. Buyers generally expect to receive the benefits of such terms. With few exceptions, normal commercial terms range from 30 to 180 days for off-the-shelf items like consumer goods, chemicals, and other industrial raw materials, agricultural commodities, and spare parts and components. Custom-made or higher-value capital equipment, on the other hand, may warrant longer repayment periods. An allowance may have to be made for longer shipment times than are found in domestic trade, because foreign buyers are often unwilling to have the credit period start before receiving the goods.

Foreign buyers often press exporters for longer payment periods, and it is true that liberal financing is a means of enhancing export competitiveness. The exporter should recognize, however, that longer credit periods increase any risk of default for which the exporter may be liable.

Thus, the exporter must exercise judgment in balancing competitiveness against considerations of cost and safety. Also, credit terms once extended to a buyer tend to set the precedent for future sales, so the exporter should carefully consider any credit terms extended to first-time buyers.

Customers are frequently charged interest on credit periods of a year or longer but infrequently on short-term credit (up to 180 days). Most exporters absorb interest charges for short-term credit unless the customer pays after the due date.

Obtaining cash immediately is usually a high priority with exporters. One way they do so is by converting their export receivables to cash at a discount with a bank. Another way is to expand working capital resources. A third approach, suitable when the purchase involves capital goods and the repayment period extends a year or longer, is to arrange for project financing. In this case, a lender makes a loan directly to the buyer for the project and the exporter is paid immediately from the loan proceeds while the bank waits for payment and earns interest. A fourth method, when financing is difficult to obtain for a buyer or market, is to engage in countertrade (see chapter 13, Methods of Payment to afford the ustomer an opportunity to generate earnings with which to pay for the purchase.

The options that have been mentioned normally involve the payment of interest, fees, or other costs. Some options are more feasible when the amounts are in larger denominations. Exporters should also determine whether they incur financial liability should the buyer default.


The same type of commercial loans that finance domestic activities including loans for working capital and revolving lines of credit are often sought to finance export sales until payment is received. However, banks do not usually extend credit solely on the basis of an order.

A logical first step in obtaining financing is for an exporter to approach its local commercial bank. If the exporter already has a loan for domestic needs, then the lender already has experience with the exporter's ability to perform. Many exporters have very similar, if not identical, preshipment needs for both their international and their domestic transactions. Many lenders, therefore, would be willing to provide financing for export transactions if there were a reasonable certainty of repayment. By using letters of credit or export credit insurance, an exporter can reduce the lender's risk.

When a lender wishes greater assurance than is afforded by the transaction, a government guarantee program (see the "Government Assistance Programs" section of this chapter) may enable a lender to extend credit to the exporter.

For a company that is new to exporting or is a small or medium-sized business, it is important to select a bank that is sincerely interested in serving businesses of similar type or size. If the exporter's bank lacks an international department, it will refer the exporter to a correspondent bank that has one. The exporter may want to visit the international department of the exporter's own bank or a correspondent bank to discuss its export plans, available banking facilities, and applicable fees.

When selecting a bank, the exporter should ask the following questions:

Banker's Acceptances and Discounting

A time draft under an irrevocable letter of credit confirmed by a prime U.S. bank presents relatively little risk of default. Also, some banks or other lenders may be willing to buy time drafts that a creditworthy foreign buyer has accepted or agreed to pay at a specified future date. In some cases, banks agree to accept the obligations of paying a draft, usually of a customer, for a fee; this is called a banker's acceptance.

However, to convert these instruments to cash immediately, an exporter must obtain a loan using the draft as collateral or sell the draft to an investor or a bank for a fee. When the draft is sold to an investor or bank, it is sold at a discount. The exporter receives an amount less than the face value of the draft so that when the draft is paid at its face value at the specified future date, the investor or bank receives more than it paid to the exporter. The difference between the amount paid to the exporter and the face amount paid at maturity is called a discount and represents the fees or interest (or both) the investor or bank receives for holding the draft until maturity. Some drafts are discounted by the investor or bank without recourse to the exporter in case the party that is obligated to pay the draft defaults; others may be discounted with recourse to the exporter, in which case the exporter must reimburse the investor or bank if the party obligated to pay the draft defaults. The exporter should be certain of the terms and conditions of any financing arrangement of this nature.

Project Finance

Some export sales, especially sales of capital equipment, may sometimes require financing terms tailored to the buyer's cash flow and may involve payments over several years. Often the buyer obtains a loan from its own bank or arranges for other financing to enable it to pay cash to the exporter. If other project financing is required, either the exporter or the foreign buyer can initiate the proposal.

U.S. exporters frequently benefit from project finance in which federal agencies such as the Eximbank and OPIC participate. Although these programs are designed to support the purchase of U.S. goods and services, many U.S. companies export without being parties to the project finance or even being aware of its existence.


Factoring, Forfaiting, and Confirming

Factoring is the discounting of a foreign account receivable that does not involve a draft. The exporter transfers title to its foreign accounts receivable to a factoring house (an organization that specializes in the financing of accounts receivable) for cash at a discount from the face value. Although factoring is often done without recourse to the exporter, the specific arrangements should be verified by the exporter. Factoring of foreign accounts receivable is less common than factoring of domestic receivables.

Forfaiting is the selling, at a discount, of longer term accounts receivable or promissory notes of the foreign buyer. These instruments may also carry the guarantee of the foreign government. Both U.S. and European forfaiting houses, which purchase the instruments at a discount from the exporter, are active in the U.S. market. Because forfaiting may be done either with or without recourse to the exporter, the specific arrangements should be verified by the exporter.

Confirming is a financial service in which an independent company confirms an export order in the seller's country and makes payment for the goods in the currency of that country. Among the items eligible for confirmation (and thereby eligible for credit terms) are the goods themselves; inland, air, and ocean transportation costs; forwarding fees; custom brokerage fees; and duties. For the exporter, confirming means that the entire export transaction from plant to end user can be fully coordinated and paid for over time. Although confirming is common in Europe, it is still in its infancy in the United States.

Export Intermediaries

In addition to acting as export representatives, many export intermediaries, such as ETCs and EMCs, can help finance export sales. Some of these companies may provide short-term financing or may simply purchase the goods to be exported directly from the manufacturer, thus eliminating any risks associated with the export transaction as well as the need for financing. Some of the larger companies may make countertrade arrangements that substitute for financing in some cases.

Buyers and Supliers as Surces of Finncing

Foreign buyers may make down payments that reduce the need for financing from other sources. In addition, buyers may make progress payments as the goods are completed, which also reduce other financing requirements. Letters of credit that allow for progress payments upon inspection by the buyer's agent or receipt of a statement of the exporter that a certain percentage of the product has been completed are not uncommon.

In addition, suppliers may be willing to offer terms to the exporter if they are comfortable that they will receive payment. Suppliers may be willing to accept assignment of a part of the proceeds of a letter of credit or a partial transfer of a transferable letter of credit. However, some banks allow only a single transfer or assignment of a letter of credit. Therefore, the exporter should investigate the policy of the bank that will be advising or confirming the letter of credit.


Several federal government agencies, as well as a number of state and local ones, offer programs to assist exporters with their financing needs. Some are guarantee programs that require the participation of an approved lender; others provide loans or grants to the exporter or a foreign government.

Government programs generally aim to improve exporters' access to credit rather than to subsidize the cost at below-market levels. With few exceptions, banks are allowed to charge market interest rates and fees; part of those fees is paid to the government agencies to cover the agencies' administrative costs and default risks.

Government guarantee and insurance programs are used by commercial banks to reduce the risk associated with loans to exporters. Lenders concerned with an exporter's ability to perform under the terms of sale, and with an exporter's ability to be paid, often use government programs to reduce the risks that would otherwise prevent them from providing financing.

In overview, the Eximbank is the federal government's general trade finance agency, offering numerous programs to address a broad range of needs. Credit insurance provided through its affiliate, the FCIA, protects against default on exports sold under open account terms and drafts and letters of credit that are not the obligation of a U.S. entity. (Excluded are drafts that have been accepted by a U.S. bank or corporation and letters of credit confirmed by a U.S. bank.) Other guarantee and loan programs extend project finance and medium-term credit for durable goods.

Other agencies fill various market niches. USDA offers a variety of programs to foster agricultural exports. The TDP (see chapter 7, Making Contacts) provides grant financing for project planning activities conducted by U.S. firms and thereby seeks to give a U.S. "imprint" on project feasibility studies and design. SBA offers programs to address the needs of smaller exporters. OPIC provides specialized assistance to U.S. firms through its performance bond and contractor insurance programs. AID provides grants to developing nations that can be used to purchase U.S. goods and services (see Making Contacts).

Although the Department of Commerce does not offer any financing programs of its own, export counseling is available through its district offices. In addition, current articles on export finance programs are periodically published in Business America.

The following descriptions provide a basic overview.


Eximbank is an independent U.S. government agency with the primary purpose of facilitating the export of U.S. goods and services. Eximbank meets this objective by providing loans, guarantees, and insurance coverage to U.S. exporters and foreign buyers, normally on market-related credit terms.

Eximbank's insurance and guarantee programs (see table 14-1) are structured to encourage private financial institutions to fund U.S. exports by reducing the commercial risks (such as buyer insolvency and failure to pay) and political risks (such as war and currency inconvertibility) exporters face. The financing made available under Eximbank's guarantees and insurance is generally on market terms, and most of the commercial and political risks are borne by Eximbank.

Eximbank's loan program, on the other hand, is structured to neutralize interest rate subsidies offered by foreign governments. By responding with its own subsidized loan assistance, Eximbank enables U.S. financing to be competitive on specific sales with that offered by foreign exporters.

Preexport Financing

The Working Capital Guarantee program enables lenders to provide financing an exporter may need to purchase or produce a product for export as well as finance short-term accounts receivable. If the exporter defaults on a loan guaranteed under this program, Eximbank reimburses the lender for the guaranteed portion generally, 90 percent of the loan thereby reducing the lender's overall risk. The Working Capital Guarantee program can be used either to support ongoing export sales or to meet a temporary cash flow demand arising from a single export transaction.

The loan principal can be up to 90 percent of the value of the collateral put up by the exporter, a relatively generous percentage. Eligible collateral includes foreign receivables, exportable inventory purchased with the proceeds of the loan, and goods in production. The term of the guaranteed line of credit is generally one year, but a longer period may be acceptable.

Postexport Financing

Eximbank offers commercial and political risk insurance through its affiliate, the FCIA. The insurance protects mostly short-term credit extended for the sale of consumer goods, raw materials, commodities, spare parts, and other items normally sold on terms of up to 180 days. Coverage is also available for some bulk commodities sold on 360-day terms and capital and quasi-capital goods sold on terms of up to five years.

FCIA's insurance policies for exporters include the New-to-Export Policy, Single-Buyer Policy, and Multi-Buyer Policy. In addition, the Umbrella Policy enables an administrator to handle most administrative duties for the exporter. With prior written approval, exporters can assign the rights to any proceeds to a lender as collateral for financing.

FCIA's policies cover up to 100 percent of loans due to specified political risks, such as war and expropriation, and up to 95 percent due to loans from other commercial risks, such as buyer default and insolvency. Exporters generally must meet U.S. content requirements and, under some policies, must insure all eligible foreign sales.

FCIA premiums reflect various risk factors, including length of credit period, payment method, and the country of the buyer. In keeping with insurance principles, FCIA seeks a reasonable spread of risk among the different export markets and avoids unduly concentrated credit exposure.

Several private companies also offer export credit insurance covering political and commercial risks. Private insurance is available for established exporters with a proven track record, often at competitive premium rates, although underwriting capacity in particular markets may be limited. Coverage for contract repudiation and wrongful calling of a bid or performance bond may also be available in the private market. Contact an insurance broker for more information.

To encourage exporters and lenders to make export loans to creditworthy foreign buyers of U.S.-produced goods and services, Eximbank offers its guarantee program. Eximbank guarantees the repayment of medium-term (up to seven years and less than $10 million) loans to foreign buyers of U.S. goods and services. Lenders charge market rate interest on the loan. A minimum 15 percent cash payment is required from the buyer; the remaining 85 percent is financed. Eximbank's guarantee covers 100 percent of the political risk and 85 percent of the commercial risk of the principal on medium-term loans. Coverage for the loan's interest is also provided. Eximbank guarantees loans made in U.S. dollars or any other freely convertible currency.

Eximbank offers fixed-rate financing for long-term sales (repayment periods up to 10 years) for projects such as telecommunications, power plants, and transportation. The interest rates, which are set under international agreement and regularly adjusted in step with market conditions, reflect the per capita income of the importing country and the repayment period of the loan. Eximbank loans to developed countries are charged market interest rates; loans to less developed countries may be slightly less. In practice, Eximbank seldom lends to buyers in developed countries. To qualify for an Eximbank loan, an exporter must show evidence of foreign government-supported competition. This qualification may be waived for small businesses requesting loans of $2.5 million or less. Like the guarantee program, Eximbank's loans require a 15 percent cash payment in advance.

For more information on Eximbank's programs contact the Marketing and Program Division, Export-Import Bank, 811 Vermont Avenue N.W., Washington, DC 20571; telephone 202-566-8873. The toll-free hotline telephone number for advice and assistance to small businesses interested in exporting is 800-424-5201.


The FAS of USDA administers several programs to help make U.S. exporters competitive in international markets and make U.S. products affordable to countries that have greater need than they have ability to pay.

One effort to boost U.S. agricultural sales overseas is the Export Credit Guarantee Program, which offers risk protection for U.S. exporters against nonpayment of foreign banks. The program guarantees payment for commercial as well as noncommercial risks. Private U.S. banking institutions provide the operating funds. The guarantee program makes it easier for exporters to obtain bank financing and to meet credit competition from other exporting countries.

FAS also helps carry out food aid programs that provide emergency food donations and long-term concessional and commercial financing for U.S. agricultural products. These sales are intended to stimulate long-range improvements in foreign economies and development of export markets for U.S. farm products.

Firms may obtain additional information on these financial programs by contacting General Sales Manager, Export Credits, Foreign Agricultural Service, 14th Street and Independence Avenue, S.W., Washington, DC 20250; telephone 202-447-3224.


OPIC facilitates U.S. foreign direct investment in developing nations and Eastern Europe. OPIC is an independent, financially self-supporting corporation, fully owned by the U.S. government.

OPIC encourages U.S. investment projects overseas by offering political risk insurance, guaranties, and direct loans. OPIC political risk insurance protects U.S. investment ventures abroad against the risks of civil strife and other violence, expropriation, and inconvertibility of currency. In addition, OPIC can cover business income loss due to political violence or expropriation. Congress has authorized OPIC to support selected equity investments under a pilot program.

OPIC also provides guaranties, limited to $50 million, that protect against both commercial and political risk. OPIC's direct lending is aimed exclusively toward U.S. small and medium-sized companies investing in projects overseas. OPIC direct loans do not exceed $6 million.

U.S. exporters and contractors operating abroad can benefit from OPIC programs covering wrongful calling of performance, bid, and down payment bonds and contract repudiation. Under other programs, OPIC ensures against expropriation of construction equipment temporarily located abroad, spare parts warehoused abroad, and some cross-border operating and capital loans.

OPIC also provides services to facilitate wider participation by smaller U.S. businesses in overseas investment, including investment missions, a computerized data bank, and investor information services. For more information on any of these programs contact OPIC's Public Affairs Office, Overseas Private Investment Corporation, 1613 M Street N.W., Washington, DC 20537; telephone 800-424-6742 (202-457-7010 in the Washington metropolitan area).


SBA also provides financial assistance programs for U.S. exporters. Applicants must qualify as small businesses under the SBA's size standards and meet other eligibility criteria.

Under SBA's Export Revolving Line of Credit (ERLC) Loan program, any number of withdrawals and repayments can be made as long as the dollar limit of the line is not exceeded and disbursements are made within the stated maturity period (not more than 18 months). Proceeds can be used only to finance labor and materials needed for manufacturing, to purchase inventory to meet an export order, and to penetrate or develop foreign markets. Examples of eligible expenses for developing foreign markets include professional export marketing advice or services, foreign business travel, and trade show participation. Under the ERLC program, funds may not be used to purchase fixed assets.

However, under the International Trade Loan program, SBA can guarantee up to $1 million for facilities and equipment (including land and buildings; construction of new facilities; renovation, improvement, or expansion of existing facilities; and purchase or reconditioning of machinery, equipment, and fixtures), plus $250,000 in working capital. Applicants must establish either that (1) loan proceeds will enable them to expand significantly existing export markets or develop new ones or (2) they have been adversely affected by import competition.

Although SBA loans are generally limited to $750,000, larger loans can be financed by using a cooperative agreement between SBA and Eximbank. This option may be attractive to a company with an existing SBA loan or one whose bank would prefer to work through a local SBA office, since Eximbank is based in Washington, D.C.

Both the ERLC and the International Trade Loan programs are guarantee programs that require the participation of an eligible commercial bank. Most bankers are familiar with SBA's guarantee programs.

In addition, other SBA programs may meet specific needs of exporters. For example, SBA's contractor bond program may help small exporters obtain bid or performance bonds if the transaction is structured in accordance with SBA requirements.

For more specific information on SBA's financial assistance programs, policies, and requirements, contact the nearest SBA field office or SBA's Office of Business Loans, Small Business Administration, 409 3rd Street, S.W., Washington, DC 20416; telephone 202-205-6570.


Several cities and states have funded and operational export financing programs, including preshipment and postshipment working capital loans and guarantees, accounts receivable financing, and export insurance. To be eligible for these programs, an export sale must generally be made under a letter of credit or with credit insurance coverage. A certain percentage of state or local content may also be required. However, some programs may require only that certain facilities, such as a state or local port, be used; therefore, exporters may have several options.

Exporters should contact a Department of Commerce district office (see appendix III) or their state economic development agency for more information.

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