The Benefits of Working Capital Loan Guarantees by the Export-Import Bank of the United States
Traditional commercial bank financing may not always be sufficient to meet the needs of U.S. exporters, especially given the repayment risk associated with international sales. Through EXIM’s working capital loan guarantees, U.S. exporters can obtain financing from participating lenders when traditional commercial financing is otherwise not available or when borrowing needs are greater than credit standards may typically allow.
EXIM’s pre-qualified commercial banks, using delegated authority, can expedite the loan process by committing export-related working capital loan guarantees without prior approval from EXIM. The six levels of delegated authority range up to $10 million per exporter, with larger and more experienced lenders utilizing fast-track authority to approve individual credits up to $25 million per exporter. Credits beyond $25 million are subject to independent underwriting and approval by EXIM’s Board of Directors.
For lenders, the delegated authority program provides a significant credit enhancement in the form of a U.S. government direct, conditional guarantee of 90% of principal and accrued interest on the credit facility to the U.S. exporter. The U.S. exporter may be able to access higher advance rates — up to 90% against eligible export-related accounts receivable and up to 75% against eligible export-related finished goods, work-in-process, and raw materials inventories. Funds may be used to finance the cost of manufacturing, producing, and purchasing eligible items to be exported. The guaranteed financing also may be used to support the issuance of commercial and bid, advance payment, performance and warranty standby letters of credit related to an export order. EXIM does not specify a concentration limit with respect to export-related accounts receivable and permits reliance on inventories up to 75% of the aggregate borrowing base (100% under a transaction-specific format). In addition, working capital guarantees can support indirect U.S. exports that are part of a supply chain — such as when the account debtor on an account receivable is a U.S. domestic account debtor — in which shipment is destined for U.S. export.
Typically, an EXIM borrowing base is structured under either a sister facility or a sub-facility to the primary revolving credit facility, which allows greater availability and borrowing base capacity for the company. U.S. businesses that can benefit from EXIM working capital financing typically have common characteristics, including:
- A need to grow export revenues, with relatively tight liquidity, cash flow or other resources causing missed export sales.
- A need to extend more favorable credit terms to foreign buyers.
- A need for additional working capital funding availability.
- A need for export-related working capital support in relation to work-in-process inventory or to costs-over-billings less billings-over-costs under percentage of completion accounted for export orders.
- Creditworthy U.S.-based operations (which can be foreign owned) with goods and services manufactured and performed in the United States.
- At least 50% U.S. content incorporated into export items.
- A large export contract in relation to the exporter’s balance sheet.
- A requirement to issue performance-related standby letters of credit and/or bid bonds.
When traditional commercial bank financing is not sufficient to fund a company’s export sales growth, alternative support in the form of EXIM’s working capital loan guarantees may be a viable option. Commercial and ABL Lenders who participate in EXIM Working Capital Loan Guarantees can help companies obtain the liquidity needed to fund their export business activity and grow their international sales, even during tough economic times.
Lender Account Manager
Export Import Bank of the United States