Ohio businesses face a conundrum. In today's international economy, companies must think globally. But in these troubled times, Ohio manufacturers and service companies, as well as U.S. lending institutions, must consider the risks of conducting business abroad.
Many Ohio companies and their lenders may be unaware that the Export-Import Bank of the United States (EXIM Bank) can help reduce the risks of international transactions. EXIM Bank provides a wide array of complementary programs and services to facilitate the export of U.S. goods and services to global markets. These programs enable Ohio businesses, large and small, to compete more effectively in international markets through risk mitigation and credit enhancement.
Since EXIM Bank was created 70 years ago, it has supported more than $400 billion worth of U.S. exports. EXIM Bank assists U.S. exporters in a wide range of activities, from the export of consumable agricultural products to the construction of manufacturing plants.
EXIM Bank financial products include loan and pre-export working capital guarantees, credit insurance, direct loans and limited-recourse project finance. It also offers a number of specialty products that may be particularly attractive to small businesses, companies that provide environmental products and services, and so-called underserved exporters -- companies unable to obtain traditional financing for their exports and rural companies with no experience in exporting.
Some multinational corporations are significant users of EXIM Bank's programs. Ohio companies familiar with these programs may be under the misconception that EXIM Bank products are so complex and costly that they can be utilized only in large, multibillion dollar development projects.
In fact, EXIM Bank is a user-friendly agency that offers products to help virtually every U.S. business compete in a worldwide economy. A significant percentage of EXIM Bank transactions directly benefit small business.
U.S. exporters can use EXIM Bank's short-term insurance products to insure up to 90 percent of foreign receivables (up to 95 percent for letter-of-credit transactions and 98 percent for agricultural products) against a wide variety of political and commercial risks. Payment terms of up to 180 days can be offered to the foreign buyer, and the proceeds from the insurance policy can be assigned to a lender to facilitate receivables financing.
Short-term insurance cover is available both to U.S. exporters and U.S. lenders, and can be obtained to cover a single or multiple foreign buyers.
EXIM Bank also offers medium-term coverage through its insurance products, as well as its loan guarantee program. Medium-term products cover risks associated with receivables from the export of capital equipment, its installation and spare parts.
Repayment terms of up to five years are available for transactions over $350,000. The medium-term program can be used for transactions up to $10 million and can insure against 100 percent of the financed portion of the receivables. It also covers both the political and commercial risks of default.
EXIM Bank also offers a working-capital guarantee program that U.S. exporters can use as an additional enhancement to obtain favorable advance rates for pre-export working capital, to increase liquidity and to obtain receivables financing. Under the working capital program, a U.S. exporter obtains a loan from a U.S. lender with EXIM Bank acting as a guarantor.
Finally, for larger transactions or for those eligible for longer repayment terms, EXIM Bank can provide long-term guarantees, direct loans and structured, limited recourse project finance.
Perhaps the most attractive attribute of many EXIM Bank programs is that U.S. exporters and lenders ultimately pay little or nothing to use them. Even banking and legal fees can be financed under EXIM Bank programs, and the ultimate cost of the EXIM Bank product can be included in the financial package offered to the foreign buyer.
M. Sean Purcell is a partner in the Washington, D.C. office of Vorys, Sater, Seymour and Pease LLP, where he specializes in corporate law and international financial transactions. Reach him at (202) 467-8800.