wegginar presenters Penny Challender, President, Hayes Manufacturing and Ursula Wegrzynowicz (pictured below), Business Development Specialist, The Export-Import Bank of the United States (EXIM) recently discussed “Exporting Uncertainty to Confidence: Featuring Hayes Manufacturing.” At the end of the wegginar, we promised attendees we would follow up and address all their questions. Below are Ursula’s answers to those questions.
1. What role does EXIM Bank play with the client and vendor?
EXIM Bank’s role is to provide a variety of finance and insurance tools to US based exporters to bridge the gap between what a US exporter needs to fulfill an international order and what a foreign buyer needs to place the order with a US vendor. For example, foreign buyers of US goods/services would prefer to purchase on credit terms, much like we do as consumers, yet a US exporter would prefer to be paid in advance, either because they need the funds up front for working capital purposes or to remove the worry of non-payment. EXIM Bank offers export credit insurance to bridge the gap between the US exporter and foreign importer. Our credit insurance allows the US exporter to extend open credit, satisfying the foreign importer’s needs while protecting the US exporter against nonpayment (90-95%) fulfilling the needs of the exporter. Additionally, once a US exporter insures their foreign receivable, they can pledge that as collateral to their local bank and obtain financing.
2. Would you please give practical examples for export credit insurance and loan guarantees that US companies can benefit from? Many US companies are confused about these EXIM opportunities. What are the exact costs associated with these opportunities?
Hayes Manufacturing was featured on the recent wegginar (if you missed it, watch the recording). They are a perfect example of how US companies can use export credit insurance. Hayes used the export credit insurance to confidently extend open account payment terms to their Indian distributor to support that distributor in their market. The export credit insurance assured Hayes that, in the event the Indian buyer was unable to pay, Hayes had an insurance policy to fall back on (90% coverage for single foreign customers). Some US companies are fine with extending credit, perhaps because they have already established relationships and have a good track record, but still elect to use credit insurance because once a foreign receivable is insured, it can be used as collateral to borrow from a commercial bank. Risk mitigation, extending credit, and financing are the top three reasons US companies use credit insurance.
Loan guarantees come in a couple of sizes. Many small/mid-sized US companies need working capital financing to fulfill international purchase orders. EXIM Bank provides this type of loan guarantee, called a “working capital guarantee.”
3. Accessing Pre-export working capital for your goods? Can you explain more about working capital for goods?
EXIM provides a guarantee of 90% to a US lender to extend a loan to a US exporter who needs to finance a foreign purchase order. The reason EXIM is involved in the transaction is because US lenders do not want risk associated with an international transaction. SBA offers a similar loan guarantee. Ultimately, US exporters need to ask their bank for the support. The bank will choose to work with EXIM or SBA for a variety of reasons. Either way, the US company is the beneficiary of that loan guarantee.
4. How can I get an overseas customer to buy my product?
We at EXIM Bank think that one successful strategy is to be open to granting open account credit terms! Check our list of countries to see where we are open for business and where we suggest caution: Country Limitation Schedule | EXIM.gov.
5. What’s the difference between EXIM Bank financing and SBA funding?
Both SBA and EXIM Bank provide loan guarantees. EXIM is limited to provide working capital guarantees to companies with 51% US content, while SBA does not have a content requirement. EXIM provides loan guarantees only to purchase order specific working capital needs. We do not provide permanent working capital, like the purchase of machinery or the like that would be used to support many purchase orders. SBA, on the other hand, provides a wider variety of loan guarantees for both exports and domestic transactions. Their products range from purchase order financing, to permanent working capital, and even real estate financing.
6. Is it worth it for a small business to start exporting products?
With 95% of the world’s consumers outside the US borders, we certainly think it is essential to invest in exporting. Also, having a diverse customer base can smooth out the ebbs and flows of business; while things are slower in the US, other markets may be humming, and vice versa.
7. How do I access pre-export working capital for our goods, including equipment purchases?
It is important to start by consulting with your commercial bank (see #3) as they will guide you on which loan guarantee program may best fit your needs. As mentioned, EXIM supports export purchase orders; however, no loan guarantees from EXIM may be used by a US exporter to purchase their own equipment. However, SBA does offer loan guarantees to finance the purchase of equipment.
8. What’s the easiest tool to work with customers unknown or new for export financing?
Whether you are interested in offering credit to a foreign buyer and insuring your receivables using export credit insurance; or, if you need to borrow money to finance your export working capital needs, there is a partner to help you. EXIM can provide consultations; however, once you know what product/service you need, there will be either a 3rd party trade credit insurance broker to assist you with the export credit insurance application or a bank to assist you with the loan guarantee application. There is no need to go it alone!
9. What systems or methods did you use to find distributors or sales agents?
We recommend that US exporters work with the US Department of Commerce, Commercial Service: US Commercial Service (trade.gov). Their job is to help US-based companies find overseas partners – whether agents, distributors or even end users. Companies should also tap into their state trade development agencies for additional support because many times, those state agencies disburse grants for US exporters to pursue overseas opportunities. In Illinois, companies should reach out to Illinois Department of Commerce and Economic Opportunity, Expand or Relocate – Export.
Should you have additional questions or wish to have a consultation with EXIM Bank, please visit, https://grow.exim.gov/wegg.