Topic Category: Trade & Finance

In today's extremely competitive business environment, securing foreign marketshare is essential for many companies to succeed well into the future. But to achieve this, it is imperative to first identify, assess and choose the right markets to pursue. Although market selection may seem obvious to some, selecting the wrong ones can be disastrous.

By establishing a set of guidelines and performing a thorough analysis, you will reduce the risks. To make the job easier, consider some of our guidelines below.

Topic: Trade & Finance
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Are the U.S. government’s new antiterrorism policies and regulations for cross-border commerce serving, in effect, as non-tariff barriers? If so, are they trumping the long-standing objective of maintaining a relatively open and easily crossed international border between the U.S. and Canada?

What are the principal costs involved in complying with the new security mandates? And, what are the likely strategic responses of American and Canadian companies to these new security regulations when it comes to decisions related to supply line logistics, direct investments, and the location of production?

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People who live in countries open to the global economy enjoy a higher standard of living, on average, than those trapped behind high-tariff barriers. They eat better and live longer. Their children are more likely to attend school than work in the fields. They can speak, assemble and worship more freely and elect their rulers democratically. And because economically open countries are more likely to be democracies, they are less likely to fight wars with each other.

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FAQ: What is the impact of the U.S.-Chilean Free Trade Agreement?

Talking Points:

On September 3, 2003, after years of intense negotiations, President George W. Bush signed the U.S.-Chile and U.S.-Singapore Free Trade Agreements. As a result, Chile and Singapore joined Israel, Canada, Mexico, and Jordan to become the United States’ fifth and sixth free trade partners.

As the first comprehensive trade agreement between the United States and a South American country, the U.S.-Chile Free Trade Agreement is anticipated to boost bilateral trade and investment. Largely modeled after NAFTA, the Chilean accord encourages progress on the Free Trade Agreement of the Americas, which is anticipated to be completed in the near future.

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FAQ: What is the impact of NAFTA on the United States?

Talking Points:

Formal NAFTA negotiations began in June 1991 and were completed in August 1992. The trade accord, ratified by both the U.S. House of Representatives and the Senate in November 1993, was implemented on January 1, 1994. Although more than a decade has passed, the question of whether NAFTA has had a positive or negative impact still persists. The perceived loss of U.S. economic preeminence vis-à-vis the rest of the world, coupled with the reduction in the number of U.S. manufacturing jobs, have generated frustration among many Americans. In addition, in this period of globalization, the fear of losing one’s job is echoed daily. Without foundation, much of this frustration has been vented on NAFTA.

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FAQ: How does the value of the dollar impact the U.S. economy?

Talking Points:

The effects of a rising or declining dollar are complex and not always well understood. When the dollar decreases in value, U.S. exports typically become more attractive abroad. In turn, companies selling more goods and services often hire more workers. But a decreasing dollar has other consequences. For example, U.S. manufacturers who rely on imported components and materials find it more costly to produce their goods. In turn, these manufacturers may absorb this added cost, which will reduce corporate profits and possibly impact hiring. Or, they may pass this increase on to consumers, which could lead to inflation. Additionally, a dollar that is weakening or declining in value for lengthy periods of time or at a rapid pace can dampen investor confidence and result in less U.S. inbound investment. In turn, this can make it difficult to finance budget deficits and may lead to higher interest rates. Thus, business expansion becomes more costly and compromises the ability of companies to hire new employees.

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FAQ: What are the theoretical benefits of free trade?

Talking Points:

International trade theory has its roots in the 18th-century writings of Adam Smith. Not only did he refute arguments for restricted trade, which relied on the belief that material gains acquired by one nation were done so at the expense of the other, but he demonstrated the potential gains of free trade. Thus, trade among nations is not a zero sum game, but rather, a win-win situation.

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According to some analysts, the dollar is set for a fourth consecutive and unprecedented year of decline. To some, this is good news; to others, a disaster.

Some Historical Perspective

In March 1973, the Federal Reserve’s Nominal Major Currencies Dollar Index was set at 100. In March 1985, the U.S. dollar reached its highest level at 143.90, while its lowest point came about 10 years later, in April 1995 when it fell to 80.33. In December 2004, the index continued to fall, slipping to 80.19, as compared to major currencies.

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On May 1, 2004, the 15-member European Union will admit 10 new members. This will increase its current number of consumers from 375 million to 448 million, and result in a significant boost in EU negotiating strength. This also will have ramifications for the euro. What will this mean for the United States and your business?

The New EU and Its Challenges

Current EU members include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom. On May 1, the expanding trade bloc will admit the Czech Republic, Hungary, Poland, the Slovak Republic, Slovenia, the Baltic states of Estonia, Latvia and Lithuania, and the Mediterranean islands of Malta and Cyprus. In addition, two other applicant countries, Bulgaria and Romania, may join by 2007. A 13th hopeful, Turkey, has not been given a date to begin accession negotiations.

New members will contribute $680 billion in gross domestic product (GDP) to the EU and erase the last traces of the old “Iron Curtain” from the Cold War years. However, the ever-increasing bloc will not be without its challenges. For example, Western EU members will be required to pump billions of dollars in subsidies into the Eastern economies. And not unlike some of the problems that plagued former West Germany when it absorbed former East Germany, tensions are likely to arise when workers in the West lose jobs to many in the East.

Will U.S. Influence Diminish?

Since World War II and throughout the Cold War period, the United States has been unquestionably the world leader in terms of trade and economic policy. In fact, the Cold War provided much of the glue that held the American-Western European alliance together. However, since the end of the Cold War, and in light of the EU’s expansion plans, the U.S.’s position of dominance is being challenged.

To a greater extent, the EU is questioning the policy decisions of the United States. Consequently, forging new multilateral trade agreements and defending U.S. interests in trade disputes could become more difficult. And, as Eastern Europe grows more affluent and boosts imports, will goods and services from Western European companies displace those from the United States.

Who Is Adopting the Euro?

The euro has been used for non-cash transactions since January 1, 1999. On January 1, 2002, euro coins and notes became available. And by the end of February 2002, the national currencies of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain were withdrawn in favor of the euro.

But not all EU members favor the adoption of the single European currency. In a nationwide referendum in September 2000, Denmark voted 53 percent to 47 percent against membership in the euro area, also known as Euroland or the Eurozone. Three years later in September 2003, Sweden followed with a similar vote — 56 percent to 42 percent — rejecting the euro. And according to analysts, the United Kingdom is unlikely to adopt the single European currency any time soon. Why have Denmark, Sweden and the UK decided against the euro?

Arguments Against Participation

Those against Eurozone membership argue it would erode national sovereignty and hand over power to the European Central Bank whose “one size fits all” policies may not be welcomed. Furthermore, many are concerned that the single currency could lead to a political union that may promote legislation they do not support.

The UK, which has been especially critical of the euro, has established five economic tests it says must be met before it calls a referendum. The key test is whether the UK economy is converging with those in the Eurozone, and whether this can be sustained in the long term. The second test deals with the country’s ability to cope with the changes adopting the euro would bring. And the remaining three tests assess the impact of this on jobs, foreign investment and the financial services sector.

Prime Minister Tony Blair and Chancellor Gordon Brown support adopting the euro and wish to have a referendum on the issue before the next general election in mid-2006. But the Tories, the opposing conservative party, are against joining the euro in the immediate future. Britain’s attachment to its relatively stable pound sterling, which has an unbroken history of more than 900 years and has dominated global trade for decades, is proving difficult to break.

Benefits of Eurozone Membership

The Eurozone, which represents a population of 305 million people, has benefited from the single European currency in a number of ways. According to an EU study, the single currency eliminated transaction costs related to the existence of various EU currencies estimated at 0.5 percent of GDP. Other studies estimated this cost closer to 1 percent.

An International Monetary Fund study projects the euro will increase GDP growth in participating member economies each year, and by almost 3 percent in 2010. Plus, greater macroeconomic stability and reduced governmental deficits are anticipated in an economically stronger Euroland. These and other benefits generated by the euro are attractive to newcomers.

Will New EU Members Adopt the Euro?

Will the 10 new EU members join Euroland? If so, when? Unlike existing EU members, the accession countries are not being given an option on the euro. They will have to adopt the euro as soon as they fulfill the required criteria. But that still may take time—at least several years in the earliest cases.

Nevertheless, all new EU members will eventually phase out their national currencies in favor of the euro. What impact might this have on the dollar?

Will You Need a Euro Account?

According to the Conference Board, a research organization, 60 percent of world trade is currently denominated in dollars. In the event that the greenback falls from first place, a position it has held since usurping the British pound after World War I, more global business will be conducted in euros. Regardless of which currency is on top, more European companies will request that you transact business in euros. Complying with this request can give you a competitive advantage over companies that don’t.

Consequently, you might consider printing your price lists in euros, and adjusting your ledgers, receivables, and other financial systems to deal with the single currency. Expansion of the euro will, no doubt, simplify doing business in Europe. Plus, dealing with one stable euro instead of several less stable currencies will reduce volatility risk. It also will save on exchange fees. However, keep in mind that dealing with any currency involves a level of risk.

For More Information

To convert euros into dollars, click on CNN’s currency converter (, the Universal Currency Converter (, or Oanda ( For answers to business and legal questions, visit the European Central Bank (, and the EU’s website on expansion (

This article appeared in Impact Analysis, March-April 2004.
Topic: Trade & Finance
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Financing Your Export Sales and Getting Paid

Few would disagree that small businesses should look overseas for profit opportunities. However, to succeed in the international marketplace, small firms must offer their customers competitive payment terms and methods. This chapter discusses how to choose the most appropriate international payment method, how to obtain export financing and, most importantly, how to get paid.

International Payment Methods

A small business exporter’s principal concern is to ensure that he or she gets paid in full and on time for each export sale. It does little good to make a sale if the buyer delays payment so long that the financing cost eats up the profit. Foreign buyers have concerns as well, such as ensuring that their orders arrive on time and as requested. Therefore, it is important that the terms of payment be negotiated carefully to meet the needs of both the buyer and seller.

The payment method used can significantly affect the financial risk of the buyer and seller in an export sale. In general, the more generous the sales terms are to a foreign buyer, the greater the risk to the exporter. As shown below, the primary methods of payment for international transactions, ranked in order of most secure to least secure for the exporter, include:

  1. Payment in advance
  2. Letters of credit
  3. Documentary collections (drafts)
  4. Consignment
  5. Open account

Payment in Advance

Requiring payment in advance as a term of sale is not uncommon, but in many cases is too expensive and too risky for foreign buyers. Requiring full payment in advance is an unattractive option for the buyer and can result in lost sales, especially since a competitor (foreign or domestic) may be willing to offer more attractive terms. Before negotiating payment terms, determine whether or not your buyer can obtain a comparable product or service elsewhere and the terms offered. In some cases, such as when the buyer’s credit worthiness is unknown or if your manufacturing process is specialized, lengthy or capital-intensive, it may be reasonable to insist upon progress payments or full or partial payment in advance.

Letters of Credit (LC)

Letters of credit are one of the most common and safest payment methods available. An export letter of credit is an internationally recognized instrument issued by a bank on behalf of its client, the buyer. Of course, the buyer pays its bank a fee to render this service. As a result, some buyers will resist LC terms if the competition is offering more lenient or less expensive terms. Keep in mind that various payment methods can be used as marketing tools and therefore should be negotiated carefully by you and the buyer.

An LC is useful if you are unsure of a prospective buyer’s credit worthiness, but are satisfied with the credit worthiness of your buyer’s bank. Sometimes it is difficult to obtain reliable credit information about a foreign buyer, but it may be less difficult to do so for the seller’s bank. Moreover, this vehicle can be structured to protect the purchaser since no payment obligation arises until the goods have been satisfactorily delivered as promised.

The conditions of the LC are spelled out in the LC. When the conditions of delivery have been satisfied (usually by the documented, satisfactory and timely delivery of the goods), the purchaser’s bank makes the required payment directly to the seller’s bank in accordance with the terms of payment.

The greatest degree of protection is afforded to the seller when the LC has been issued by the buyer’s bank and confirmed by a major bank. LCs may be utilized for one-time transactions, or they can cover multi-shipments, depending upon what is agreed between the parties. Also, make sure you can deliver within the terms of the LC. It is suggested that you review the details of such documentation with a bank that has LC experience.

Letters of credit can take many forms, but a typical transaction might involve the following steps:

  1. The exporter, upon receiving an order for a specified quantity of goods, sends the buyer (importer) a pro forma invoice defining all conditions of the transaction.
  2. The importer takes the pro forma invoice to the bank and applies for an LC.
  3. After verifying the terms and reaching the appropriate credit decisions, the importer’s bank opens the LC and sends it to the exporter’s bank.
  4. The exporter’s bank authenticates the LC, verifying it was issued by a viable bank, and forwards it to the exporter.
  5. The exporter compares the LC with the original pro forma invoice to ensure that the exporter can ship before the expiration date and that all conditions were incorporated in the LC as intended.
  6. The exporter prepares, usually with the help of a freight forwarder, an invoice and a packing list. These documents must be completed exactly as specified in the LC. The exporter also prepares a shipper’s letter of instruction or SLI and any other specialized documents required, e.g., export license and certificate of origin. (Check with a customs broker to determine what documents are required in your case.)
  7. The freight forwarder receives the goods along with completed paperwork in accordance with the terms of the LC.
  8. After the goods are shipped, the forwarder or exporter submits the LC and documents to the exporter’s bank.
  9. The exporter’s bank verifies that all required documents are in compliance with the LC and forwards the documents package with a draft to the importer’s bank with wiring (payment) instructions.
  10. The importer’s bank reviews all documentation and, if the documents meet all requirements, credits the exporter’s bank.
  11. The importer’s bank simultaneously debits its customer’s account.
  12. The exporter’s bank credits the exporter’s account.
  13. At the same time, the importer’s bank releases documents to its customer. With documents in hand, the importer picks up the shipment.

Note: Your banker and freight forwarder will become important resources during a letter of credit transaction. They will help to guide you through these steps.

Documentary Collections

Documentary collections involve the use of a draft, drawn by the seller on the buyer, requiring the buyer to pay the face amount either on sight (sight draft) or on a specified date in the future (time draft). The draft is an unconditional order to make such payment in accordance with its terms. Instructions that accompany the draft specify the documents needed before title to the goods will be passed from seller to buyer.

Because title to the goods does not pass until the draft is paid or accepted, to some degree both the buyer and seller are protected. However, if the buyer defaults on payment of the draft, the seller may have to pursue payment through the courts (or possibly, through arbitration, if such had been agreed upon between the parties). The use of drafts involves a certain level of risk; but drafts are typically less expensive for the purchaser than letters of credit.


When goods are sold subject to consignment, no money is received by the exporter until after the goods have been sold by the purchaser. Title to the goods remains with the exporter until such time as all the purchase conditions are satisfied. As a practical matter, consignment is very risky. There is generally no way to predict how long it may take to sell the goods. Moreover, if they are never sold, the exporter would have to pay the costs of recovering them from the foreign consignee.

Open Account

An open account transaction means that the goods are manufactured and delivered before payment is required (e.g., payment could be due 30, 60 or 90 days following shipment or delivery). In the United States, sales are likely to be made on an open?account basis if the manufacturer has been dealing with the buyer over a long period of time and has established a trusting relationship. In international business transactions, this method of payment should not be used unless the buyer is credit worthy and the country of destination is politically and economically stable, or unless the receivables are covered by export credit insurance. In certain instances it is possible to discount accounts receivable with a factoring company or other financial institution, referred to below.

Export Financing

In the United States, small businesses typically turn to their local banks for working capital financing. However, most smaller banks do not retain staff with expertise in international trade. This is not to say, however, that such help is unavailable — only that small businesses must be persistent and tenacious in their efforts to find it. For example, if your bank’s loan officer will not work with his or her bank’s international staff (or the bank is unwilling to work with a correspondent), you should consider establishing a second banking relationship or, if necessary, moving all your accounts to a more aggressive lender with international banking expertise. So do not be afraid to shop around.

Given the difficulty most small businesses encounter when looking for export financing, it is imperative that the financial arrangements be made well in advance. To find a lender willing to consider your request, you must ensure that the purpose of the loan makes sense for the business, that the request is for a reasonable amount, and that you can demonstrate clearly how the loan will be repaid. Prospective borrowers also should understand some key distinctions before beginning discussions with a lender.

Venture Capital

Before approaching a bank for financial assistance, you should understand the distinction between venture capitalists and lenders. Venture capitalists invest in a business with the expectation that as the business grows, their equity in the business will grow exponentially. On the other hand, lenders are not in the venture capital business — they make their money on the difference between the rate at which they borrow money and the rate at which they lend to their customers.

International Trade Services

Small exporters also should understand the distinction between international trade services and lending for export transactions. Although many banks offer international trade services, such as advising, negotiating and confirming letters of credit, many banks’ international divisions are not authorized to lend. Other banks have the authority to make loans as well as provide related services. You should verify that the bank officer with whom you are dealing has the authority to lend for an export transaction or can work with the small business or commercial division of the bank to finance your export sales.

Working Capital Financing and Trade Financing

It also is important to be aware of the difference between permanent working capital and trade financing. Permanent working capital is the amount of money needed to pay short-term liabilities that remain steady over a period of several years, for example, the non-fluctuating level of accounts receivable that a business maintains. A firm’s ability to qualify for permanent working capital financing depends on, among other things, its prospects for generating sufficient net profits over the life of a loan to repay it. Trade finance, on the other hand, generally refers to financing the fluctuating working capital needs of a business, including specific export transactions. Trade finance loans can be self-liquidating. If so, the lending bank will place a lien on the export inventory and accounts receivable of the exporter and require that all sales proceeds financed by the loan be applied to pay down the loan first before the remainder is credited to the account of the borrower.

The self-liquidating feature of trade finance is critical to many small, undercapitalized businesses. Lenders who may otherwise have reached their lending limits for such businesses may nevertheless finance individual export sales, if the lenders are assured that the loan proceeds will be used solely for pre-export production; and any export sale proceeds will first be collected by them before the balance is passed on to the exporter. Given the extent of control lenders can exercise over such transactions and the existence of guaranteed payment mechanisms unique to — or established for — international trade, trade finance can be less risky for lenders than general working capital loans.

Pre-export, Accounts Receivable and Market Development Financing

Exporters should understand the distinctions between the various types of trade finance. Most small businesses need pre-export financing to help with the expense of gearing up for a particular export sale. Loan proceeds are commonly used to pay for labor and materials or to acquire inventory for export sales. Others may be interested in foreign accounts receivable financing. In that case, exporters can borrow from their banks an amount based on the volume and quality of such accounts receivable. Although banks rarely lend 100 percent of the value of the accounts receivable, many will advance up to 80 percent of the value of qualified accounts. Foreign credit insurance (such as the U.S. Export-Import Bank’s Export Credit Insurance Program) is often used to enhance the quality of such accounts.

Financing for foreign market development activities, such as participation in overseas trade missions or trade shows, is often difficult for small businesses to arrange. Most banks are reluctant to finance such activities because, for many small firms, their ability to repay such loans depends on their success in consummating sales while on a mission — prospects that in many cases are speculative. Although difficult for many small firms to do, the recommended source for financing such activities is through the working capital of the firm or, in certain cases, through the use of personal credit cards.

Finally, take time to make sure your banker understands your business and products. Have a detailed export plan ready and, most importantly, be able to clearly show how and when a loan will be repaid.

Private Sector Export Financing Resources

Commercial Banks

International trade transactions traditionally have been financed by commercial banks. Commercial banks can make loans for pre?export activities. They can also help process letters of credit, drafts and other methods of payment discussed in this chapter. Banks have also become increasingly involved in making export loans backed by United States government export loan guarantees.

Many larger banks have international departments, which can help with your company’s particular export finance needs. If your bank does not have an international department, it probably has a correspondent relationship with a larger bank that can assist you.

Private Export Finance Companies

Private trade finance companies are becoming increasingly more commonplace. They utilize a variety of financing techniques in return for fees, commissions, participation in the transactions or combinations thereof. International trade associations, such as a District Export Council, can assist you in locating a private trade finance company in your area.

Export Trading and Management Companies

Both EMCs and ETCs provide varying ranges of export services, including international market research and overseas marketing, insurance, legal assistance, product design, transportation, foreign order processing, warehousing, overseas distribution, foreign exchange and even taking title to a supplier’s goods. All of these services can leverage the limited resources of small businesses.

Factoring Houses

Factoring houses, also called “factors,” purchase export receivables on a discounted basis. Using factors can enable the exporter to receive immediate payment for goods while at the same time alleviating the delay associated with overseas collections.

Factors purchase export receivables for a percentage fee below invoice value, depending on the market and type of buyer. The percentage rate will depend on whether the factor purchases the receivables on a recourse or non-recourse basis. In the case of a non-recourse purchase, the exporter is not bound to repay the factoring house if the foreign buyer defaults or other collection problems arise. Therefore, the percentage charge will be greater with non-recourse purchases.

Forfaiting Houses

Similar to factoring, exporters relinquish their rights to future payment in return for immediate cash. Where a debt obligation exists between the parties, it is sold to a third party on a non-recourse basis, but is guaranteed by an intermediary bank.

Government Export Financing Resources

Because private sector financing providers will only assume limited risk regarding foreign transactions, the U.S. government provides export-financing assistance. U.S. government export financing assistance comes in the form of guarantees made to U.S. commercial banks, which in turn make loans available to exporters. Federal agencies, as well as certain state governments, have their own particular programs as noted below.

U.S. Small Business Administration (SBA)

SBA provides financial and business development assistance to help small businesses sell overseas. SBA’s export loans are available under SBA’s guarantee program. As a prospective applicant, you can request that your lender seek SBA participation if the lender is unable or unwilling to make a direct loan.

The financing staff of each SBA district and branch office administers the financial assistance programs. You can contact the finance division of your nearest SBA office for a list of participating lenders. The economic development staff of each SBA district and branch office can provide counseling on how to request export finance assistance from a lender.

Export Express

SBA Export Express combines the SBA’s small business lending assistance with its technical assistance programs to help small businesses that have traditionally had difficulty in obtaining adequate export financing. The pilot program is available throughout the U.S. and is expected to run through September 30, 2005. SBA Export Express helps small businesses that have exporting potential, but need funds to buy or produce goods, and/or to provide services for export. Loan proceeds may be used to finance export development activities such as:

  1. Participation in foreign trade shows,
  2. Translation of product brochures or catalogues for use in overseas markets,
  3. General lines of credit for export purposes,
  4. Service contracts from buyers located outside the United States,
  5. Transaction-specific financing needs associated with completing actual export orders, and/or
  6. Purchase of real estate and equipment to be used in production of goods or services for expansion,
  7. Provide term loans and other financing to enable small business concerns, including export trading companies and export management companies, to develop foreign markets, and
  8. Acquire, construct, renovate, modernize, improve or expand productive facilities or equipment to be used in the United States in the production of goods or services involved in international trade.

For more details, go to

Regular Business Loan Program

Small businesses that need money for fixed assets and working capital may be eligible for the SBA’s regular 7(a) business loan guarantee program. Loan guarantees for fixed-asset acquisition have a maximum maturity of 25 years. Guarantees for general-purpose working capital loans have a maximum maturity of seven years. Export trading companies (ETCs) and export management companies (EMCs) also may qualify for the SBA’s business loan guarantee program.

To be eligible, the applicant’s business generally must be operated for profit and fall within size standards set by SBA. The standards vary by industry and are determined by either the number of employees or the volume of annual receipts. Check with your local SBA district office to determine if your company falls within the small business size standards. Loans cannot be made to businesses engaged in speculation or investment in rental real estate.

The SBA can guarantee up to 85 percent of a bank loan up to $150,000 and 75 percent of a loan over $150,000, with the maximum exposure not to exceed $1 million. Once a loan amount exceeds $1,333,333, the guaranty percentage reduces so the maximum exposure does not exceed $1 million (i.e. a $1,500,000 loan can have a 66.66 petcent guaranty — exposure does not exceed $1 million). The lender may charge a maximum interest rate of 2.75 percentage points above the lowest reported Wall Street Journal prime or 2.25 percentage points above the lowest reported Wall Street Journal prime if the maturity is less than seven years.

Export Working Capital Program

The Export Working Capital Program (EWCP) ( can support single transactions or multiple export sales and was designed to provide short-term working capital to exporters. The program supports export financing to small businesses when that financing is not otherwise available at reasonable terms. The program encourages lenders to offer export working capital loans by guaranteeing repayment of up to $1 million or 90 percent of a loan amount, whichever is less. A loan can support a single transaction or multiple sales on a revolving basis.

The EWCP is a combined effort of the SBA and the Export-Import Bank (Ex-Im Bank). The two agencies have joined their working capital programs to offer a unified approach to the government’s support of export financing. The EWCP uses a one-page application form and streamlined documentation with turnaround usually 10 days or less. A letter of pre-qualification is also available from the SBA.

SBA guarantees EWCP loan requests of $1,111,111 or less while loan requests over $1,111,111 may be processed through the Export-Import Bank. When an EWCP loan is combined with an international trade loan, the SBA’s exposure can go up to $1.25 million. In addition to the eligibility standards listed on the website, an applicant must be in business for a full year (not necessarily in exporting) at the time of application. SBA may waive this requirement if the applicant has sufficient export trade experience. Export management companies or export-trading companies my use this program; however, title must be taken in the goods being exported to be eligible.

Most small businesses are eligible for SBA loans; some types of businesses are ineligible and a case-by-case determination must be made by the agency. Eligibility is generally determined by business type, use of proceeds, size of business and availability of funds from other sources.

The proceeds of an EWCP loan must be used to finance the working capital needs associated with single or multiple export transactions. Proceeds may not be used to finance professional export marketing advice or services, foreign business travel, participating in trade shows or U.S. support staff overseas, except to the extent it relates directly to the transaction being financed. In addition, proceeds may not be used to make payments to owners, to pay delinquent withholding taxes or to pay existing debt.

The applicant must establish that the loan will significantly expand or develop an export market, is currently adversely affected by import competition, will upgrade equipment or facilities to improve competitive position or must be able to provide a business plan that reasonably projects export sales sufficient to cover the loan.

SBA guarantees the short-term working capital loans made by participating lenders to exporters. An export loan can be for a single or multiple transactions. If the loan is for a single transaction, the maturity should correspond to the length of the transaction cycle with a maximum maturity of 18 months. If the loan is for a revolving line of credit, the maturity is typically 12 months, with annual re-issuances allowed two times, for a maximum maturity of three years.

Four unique requirements of the EWCP loan include the following:

  1. An applicant must submit cash flow projections to support the need for the loan and the ability to repay.
  2. After the loan is made, the loan recipient must submit continual progress reports.
  3. SBA does not prescribe the lender’s fees.
  4. SBA does not prescribe the interest rate for the EWCP.
  5. SBA guarantees up to 90 percent of an EWCP loan amount up to $1 million.

SBA considers several factors in reviewing an EWCP application. These questions include the following:

  1. Is there a transaction and is it viable?
  2. How reliable is the repayment source?
  3. Can the exporter perform under the terms of the deal?

Interest rates are negotiable between the applicant and the lender. SBA charges a guarantee fee of one-quarter of one percent (.25 percent); other fees may apply. Collateral may include export inventory, foreign receivables, assignments of contract and letter of credit proceeds and domestic receivables. Personal guarantees usually are required to support the credit.

The EWCP offers several advantages for both the exporter and the lender, including a simplified application form and a quicker turnaround time on SBA’s review and commitment. Under the program, small businesses can apply directly to the SBA for a preliminary commitment for a guaranty. With SBA’s preliminary commitment in hand, an exporter can then find a lender willing to extend the credit. The lender must apply to SBA for the final commitment.

A borrower must give SBA a first security interest equal to 100 percent of the EWCP guaranty amount. Collateral must be located in the United States. To apply for a working capital guaranty, a lender — or the exporter if a preliminary commitment is sought — should submit to SBA a completed EWCP application, in addition to other information.

The International Trade Loan Program

The most fundamental reason to export is to improve your company’s bottom line, but to compete and expand abroad can require additional resources domestically. The SBA’s International Trade Loan Program (ITL) can assist your small business in financing machinery and equipment, financing real estate and improving a competitive position that has been adversely affected by import competition.

The SBA guarantees to commercial lenders up to $1.25 million in combined working capital and fixed asset loans, including any other current SBA loan guarantees. Working capital may be made according to the provisions of the Export Working Capital Program or as a permanent working capital loan.

The SBA offers the competitive rates and terms small businesses need to compete globally. Note:

  1. Rates for loans with maturities under 7 years may not exceed 2.25 percent over the prime rate.
  2. Rates for loans with maturities of 7 years or more may not exceed 2.75 percent over the prime rate.
  3. Maturities can be up to 25 years for real estate, up to 15 years for equipment, and/or up to 10 years for working capital.

The SBA requires the lender to take a first lien position on fixed assets financed under the ITL. Personal guarantees usually are required to support the credit. Only collateral located in the United States, its territories and possessions is acceptable for a loan made under this program.

Small Business Investment Company (SBIC) Financing

The Small Business Investment Company (SBIC) program is part of the U.S. SBA. It was created in 1958 to fill the gap between the availability of venture capital and the needs of small businesses in start-up and growth situations. For detail, go to

Export-Import Bank of the United States (Ex-Im Bank)

Ex-Im Bank ( is an independent U.S. government agency that supports the financing of U.S. goods and services, turning export opportunities into real transactions and maintaining and creating more U.S. jobs. It assumes the credit and country risks that the private sector is unable or unwilling to accept. It does not compete with private sector lenders but provides export-financing products that fill gaps in trade financing. It also helps to level the playing field for U.S. exporters by matching the financing that other governments provide to their exporters.

Ex-Im Bank provides working capital guarantees (pre-export financing); export credit insurance (post-export financing); and loan guarantees and direct loans (buyer financing). On average, 85 percent of its transactions directly benefit U.S. small businesses. With nearly 70 years of experience, Ex-Im Bank has supported more than $400 billion of U.S. exports, primarily to developing markets worldwide.

Export Credit Insurance Programs

Ex-Im Bank’s export credit insurance allows you to increase your export sales by limiting your international risk, offering credit to your international buyers and enabling you to access working capital funds. The insurance:

  1. Reduces nonpayment risk
  2. Enables you to extend competitive credit terms to buyers
  3. Helps you export to new markets with more confidence
  4. Increases cash flow

Ex-Im Bank’s insurance covers buyer nonpayment for commercial risks (e.g., bankruptcy) and certain political risks (e.g., war or the inconvertibility of currency). This product can replace cash-in-advance, letters of credit and other documentary sales. These policies also allow you to provide qualifying international buyers with advantageous terms of credit. In today’s competitive global marketplace, you may be able to increase sales by providing this “open account” financing feature.

This insurance also enhances the quality of your balance sheet by transforming export-related accounts receivable into receivables insured by the U.S. government. With this insurance in place, lenders are more likely to advance against these receivables to increase your working capital cash flow.

Ex-Im Bank can do business in most markets. However, it may be limited or unable to offer financing in certain countries under certain circumstances. Note: All applications for short-term and medium-term insurance are subject to an objective credit criteria. To ensure consistent and transparent credit analysis, Ex-Im Bank has developed credit standards to facilitate timely application processing.

Small Business Initiative

The Small Business Initiative ( is committed to support small business exporters. Small businesses can access all Ex-Im Bank financing products, including specialized small business financing tools such as our working capital guarantee and export credit insurance.

With the working capital guarantee and insurance products, small businesses can increase sales by entering new markets, expanding their borrowing base and offering buyers financing while carrying less risk. Often, small-sized exporters do not have adequate cash flow or cannot get a lender loan to fulfill an export sales order. The Ex-Im Bank working capital guarantee assumes 90 percent of the lender’s risk so exporters can access the necessary funds to purchase raw materials or supplies.

Ex-Im Bank’s insurance policies protect exporters from foreign buyer default and allow exporters to extend credit to their foreign buyers. For qualifying small businesses, enhanced coverage is offered. To qualify as a small business, the U.S. exporter (together with affiliates) must simply meet the U.S. Small Business Administration’s definition of a small business and have export credit sales of less than $5 million. Features of this small business policy include no first-loss deductible, simplified premium-rate schedule, and enhanced assignment (for qualified exporters) — an attractive financing feature that allows your lender to advance on the insured receivables with limited risk.

Ex-Im Bank works with small businesses at the local level through its five regional offices and a nationwide network of nearly 40 City/State Partners. Distribution channels also include 120 delegated authority lenders in 28 states that can directly commit Ex-Im Bank’s guarantee on working capital loans. And insurance brokers in every state can assist with Ex-Im Bank’s export credit insurance applications. In addition, Ex-Im Bank participates in approximately 20 trade shows and sponsors more than 20 exporter seminars every year, including events involving small exporters as well as exporters of environmentally beneficial goods and services.

Pre-Export Finance Program

The Ex-Im Bank’s Working Capital Program ( enables U.S. exporters to obtain loans to produce or buy goods or services for export. These working capital loans, made by commercial lenders and backed by an Ex-Im Bank guarantee, provide you with the liquidity to accept new business, grow international sales and compete more effectively in the international marketplace. This program helps fulfill export sales orders, turn export-related inventory and accounts receivable into cash and expand access to financing. Eligible exporters must be located in the United States, have at least a one-year operating history, and have a positive net worth.

Exporters may use the guaranteed financing to:

  1. Purchase finished products for export
  2. Pay for raw materials, equipment, supplies, labor and overhead to produce goods and/or provide services for export
  3. Cover standby letters of credit serving as bid bonds, performance bonds or payment guarantees
  4. Finance foreign receivables

There is no minimum or maximum transaction amount. Ex-Im Bank assumes 90 percent of the bank loan, including principal and interest. For qualified loans to minority, woman-owned or rural businesses, Ex-Im Bank can increase its guarantee coverage to 100 percent. Our pre-qualified commercial lender partners, working under Ex-Im Bank’s delegated authority, can expedite the loan process by committing our guarantee without prior Ex-Im Bank approval. Most of Ex-Im Bank’s working capital guarantees are provided through these lenders.

Typically, loan terms are for one year but can be up to three years. The loan can be either transaction-specific or revolving. These guaranteed working capital loans are secured by export-related accounts receivable and inventory (including work-on-process) tied to an export order. For letters of credit issued under the guaranteed loan, Ex-Im Bank only requires collateral for 25 percent of the value of the letter of credit.

Direct Loan

Ex-Im Bank assists exporters by providing fixed-rate loans to creditworthy international buyers, in both the private and public sector, for purchases of U.S. goods and services. Ex-Im Bank’s loan to international buyers are generally used for financing purchases of U.S. capital equipment and services, exports for large-scale projects and available for refurbished equipment, software, certain banking and legal fees and certain local costs and expenses. Military or defense items generally are not eligible nor are sales to military buyers (certain exceptions exist).

For more detail, visit

Guarantee Program

Ex-Im Bank also assists exporters by guaranteeing term financing to creditworthy international buyers, in both the private and public sector, for purchases of U.S. goods and services. This is generally used for financing purchases of U.S. capital equipment and services, and must be shipped from the United States to an international buyer. Ex-Im Bank can do business in most markets. However, it may be limited or unable to offer financing in certain countries and under certain terms.

For more detail, visit

Commodity Credit Corporation (CCC)

The Commodity Credit Corporation, U.S. Department of Agriculture, administers export credit guarantee programs ( for commercial financing of U.S. agricultural exports. The programs encourage exports to buyers in countries where credit is necessary to maintain or increase U.S. sales, but where financing may not be available without CCC guarantees.

Two programs underwrite credit extended by the private banking sector in the United States (or, less commonly, by the U.S. exporter) to approved foreign banks using dollar-denominated, irrevocable letters of credit to pay for food and agricultural products sold to foreign buyers. The Export Credit Guarantee Program (GSM-102) covers credit terms up to three years. The Intermediate Export Credit Guarantee Program (GSM-103) covers longer credit terms up to 10 years.

State Export Financing Programs

A number of state-sponsored export financing and loan guarantee programs are available. Many cities and states have established cooperative programs with the Ex-Im Bank and can provide specialized export finance counseling. Details of these programs are available through each state department of commerce or trade office.

Once an exporter determines the kind of export financing assistance to be used and which payment method, the next step is to arrange for delivery of the goods to the buyer’s destination. It is important to assess the various transportation options available — the subject of Chapter Seven, “Transporting Goods Internationally.”

This chapter appeared in the book Breaking Into the Trade Game, 2004.
Topic: Trade & Finance
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