Export-Import Bank’s Role in Leveraging Trade for Economic Growth
11 Mar, 2014By: Sean Mulvaney
U.S. trade with the rest of the world, whether through exports or imports, is an essential thread woven throughout the fabric of the U.S. economy. Such trade is a key source of growth and competitiveness for American companies as well as boosting the quality of life for American citizens. Going forward, a critical task for the U.S. is how we leverage the prosperity beyond our borders into more growth and prosperity here at home. It will not simply just happen. Moreover, it will not be the responsibility of just a few large U.S. companies. Increasingly, U.S. small and medium-size enterprises (companies with 500 employees or less) need to engage in international trade.
With 95 percent of the world’s consumers living outside our borders, more U.S. companies must look abroad. Of the U.S.’s 30 million companies, only one percent, or 280,000 companies, export, and of those who do, 58 percent export to only one market. To engage successfully in cross-border trade, U.S. companies must:
Develop cross-cultural skill sets in sales, marketing and customer service
Learn how to transport goods efficiently around the world
Acquire more knowledge of the various methods for receiving foreign payment or extending credit internationally.
How Your Community’s Exporters Can Leverage Ex-Im Mission
Within the third area is where Export-Import Bank (Ex-Im) plays a support role to U.S. exporters. Guided by specific parameters authorized by Congress and the President, Ex-Im can help U.S. companies secure working capital, mitigate foreign buyer payment risk or provide assistance to facilitate credit to foreign buyers.
State and local policy leaders, business chambers and economic development associations can improve private-sector awareness and utilization of public and private resources available to support engagement in international trade, including those from the Ex-Im.
As some readers may know, Ex-Im is the official export credit agency of the U.S. government. The agency is self-sustaining, meaning it does not require a taxpayer appropriation of resources. Fees are charged to cover its administrative and program expenses. Reserves are set aside to cover losses should Ex-Im incur a default on its credit activities.
For 80 years, Ex-Im’s mission has been to support U.S. exports and U.S. jobs. The Bank’s purpose is twofold. First, the Bank seeks to ensure a level playing field for U.S. exports in the global marketplace by attempting to make sure that buyer decisions are based on price and quality, not state-sponsored financing. Approximately 60 countries around the world have official export credit agencies that operate with the intent of supporting their national exporters and exports. Without Ex-Im, U.S. exporters would not have a defensive tool to combat foreign ECA supported competition.
Second, Ex-Im aims to fill trade finance gaps that the private sector is unable or unwilling to provide. To implement the mission, Ex-Im uses a variety of products such as insurance, guarantees and direct lending that span a spectrum of pre- and post-export credit needs of U.S. exporters. In FY 2013, Ex-Im generated $27 billion in credit authorizations supporting $37 billion in U.S. exports and over 200,000 American jobs.
Ex-Im Working Capital Guarantees can Maximize Borrowing Potential
Dependable sources of working capital can be critical for a company's financial stability and expansion. Private lenders are often unwilling to finance the working capital needs of U.S. companies if the output is destined for overseas customers because of the perceived foreign payment risk.
Ex-Im’s working capital program assists U.S. exporters to obtain loans to produce goods or services for export. The working capital loans, financed by commercial lenders and backed by an Ex-Im Bank's guarantee, provide U.S. businesses with the liquidity to accept new business, grow international sales and compete more effectively in the global marketplace. Ex-Im partners with 35 to 40 commercial banks to improve access to credit for U.S. exporters and will assume 90 percent of the lender's credit risk to help U.S. exporters secure access to financing. In 2013, Ex-Im issued $1.8 billion credit authorizations to support the export-based working capital needs of U.S. small business.
Ex-Im Trade Credit Insurance can Help Expand, Strengthen and Manage Overseas Customer Relationships
When engaging in international trade, U.S. exporters often prefer to avoid foreign buyer credit risk and require advance payment before shipment. A host of reasons make “cash or letters of credit” king when making international sales, but chief among them are the complexity of navigating commercial and country political risk of non-payment. At times this practice can lead to lost U.S. exporter sales as foreign competitors offer open account terms or overseas buyers face credit constraints.
To recoup these sales opportunities, trade credit insurance of foreign accounts receivables can offer a number of benefits to U.S. exporters. First, such insurance provides default protection, thereby enabling exporters to provide qualifying international buyers with beneficial terms of credit. Second, trade credit insurance can boost a U.S. exporter’s borrowing base with private lenders, removing a liquidity constraint to open account terms. Third, U.S. exporters often can enhance their marketing efforts by advertising the availability of credit to existing and prospective customers.
In 2013, Ex-Im issued over 2,800 policies with the help of insurance broker partners in support of U.S. small business exports. Ex-Im certified insurance brokers located across the country help U.S. exporters understand Ex-Im policy requirements and evaluate private insurance options should such policies be available.
Ex-Im can Facilitate Medium and Long-Term Foreign Buyer Financing
Ex-Im also assists U.S. companies by offering loan guarantees or insurance to creditworthy foreign buyers for purchases of U.S. capital goods and services. To qualify for Ex-Im financing, buyers must meet minimum credit criteria. If the buyer does not meet the standards, the use of a guarantor, bank guarantees or other credit enhancements may be used to qualify. Ex-Im’s support enables the buyers to obtain competitive term financing when financing is otherwise not available or there are no economically viable terms beyond one or two years in their respective countries. U.S. exporters benefit by receiving payment at the time of shipment. Ex-Im’s support will typically cover 100 percent of principal and accrued interest on the eligible good and services shipped from the USA. Ex-Im support is the lesser of 85 percent of the value of all eligible goods and services in the U.S. supply contract, or 100 percent of the U.S. content. The interest rate charged is typically a floating rate negotiated between the buyer and the lender.
Taking the Next Step
Ex-Im's website (www.exim.gov) is a resource to understand Ex-Im products, program requirements and business solutions to trade finance challenges.
Ex-Im small business local trade finance advisors are positioned across the country to respond to questions and enlist Ex-Im partners (commercial bankers, insurance brokers, city/state partners) to help service U.S. exporter trade finance needs. For a listing of Ex-Im offices and personnel, please see "visit us" on the Ex-Im website. To connect with an advisor, you also may submit an electronic request via Ex-Im’s website.