The Export-Import Bank’s Working Capital Guarantee Program provides a number of financing options designed to meet the needs of U.S. exporters. The program guarantees 90 percent of the principal and interest on loans extended by commercial lenders, and the loan amount may be used for a variety of purposes related to exporting goods.
Pete Knudson, senior vice president at Comerica Bank one of the lenders that offers this program says that obtaining financing for exports can be a dicey proposition.
“Most banks and financial institutions do not typically accept foreign accounts receivable as collateral, nor do they accept export orders as evidence of orders for goods to be purchased and/or manufactured or services to be provided,” he explains. “This really makes the Working Capital Program beneficial, particularly for small to mid-sized companies.”
Smart Business spoke with Knudson about how a new Fast Track program can be beneficial for companies in need of rapid funding, eligibility requirements for the program, and why the U.S. government is aiming to level the playing field in the competitive world of exports.
What is the Fast Track program, and how can a business secure this type of funding?
The Fast Track program was introduced at the end of last year. We are one of only eight lenders in the United States six are commercial banks and the other two are finance companies that offer this service. It provides a quick and easy process for credit facilities in excess of $10 million and up to $25 million. The company must have a domestic credit facility with the financing institution of at least $5 million and a positive tangible net worth. If there is a personal ownership level of at least 20 percent, then that personal ownership must be supported by a personal guarantee.
Who is eligible for the program?
Eligibility is specifically for companies that are located in the U.S. It can be a foreign company, but the location must be in the U.S. It must have a one-year operating history, and must have a positive net worth. Financial statements are required. The U.S. government provides us with a 90 percent guarantee, so we need to examine the creditworthiness of the companies.
It depends on the size of the transaction and the size of the company as to whether the statements are prepared by the company or a CPA.
What are some common reasons for claim denials?
The most common reason for claim denials would be missing a claim filing deadline. Other reasons include changing material terms with the exporter without the Export-Import Bank’s approval, non-notification of any events of default, and no collateral security filings. Another critical one would be nonpayment of the Ex-Im fees.
Once the financing has been approved, what can the funds be used for?
The funds are used to purchase finished product for export. They can be used for payment of raw materials, equipment, supplies, labor and overhead used to produce goods and/or provide services for the export. They can cover standby letters of credit that serve as bid bonds, performance bonds or any type of payment guarantee. Also, they can be used to finance foreign receivables.
What are some advantages of the Export-Import Bank’s guarantee program over other types of credit programs?
Typically, it is done with a fee structure that gives it an advantage over private commercial insurance programs. Also, it is a guarantee which is quite a bit different than insurance. Insurance tends to provide support against named perils, whereas a guarantee from the U.S. government covers all events and not just named perils.
How important is this program for American exporters to be able to compete globally?
Much of the eligible collateral would not be acceptable to a lending institution. Therefore, having the U.S. government provide a 90 percent guarantee can either make or break the financing requirement for the individual exporting company.
Many foreign competitors are also provided support by their individual governments, whether they are in the U.K., France, Germany or Japan. These countries all have institutions that provide governmental support to their exporters.
This program is an attempt by the U.S. government to level the playing field and allow our companies to compete with companies that are located in other countries.
PETE KNUDSON is senior vice president at Comerica Bank. Reach him at (310) 297-2849 or [email protected]