Export Finance

Export-Import Bank of the U.S.

SBA Export Solutions Group

Trade Credit Insurance Agency, LLC

Sharyn Koenig

Patrick Hayes

Edward Arnold

Dear God, please, not another boring presentation on…

John Vilardo M&T Bank

Financing Your Exports Unraveling the mysteries of trade finance

The exporter’s challenge

Export Sales Opportunities

Fulfilling Orders Collecting on Sales

The Exporter The Exporter’s Banker

Credit Insurance Broker Credit

Insurance Underwriter

SBA EX-IM

Problem #1 –

The 95 Percent Solution

Problem #1 – The 95 percent solution

• This firm is an exporter, but cash-in-advance has been its mantra – Foreign customers are pushing for terms – They would buy more if they could get terms – Competitors are offering terms – Losing some foreign buyers to the competition

• But there is country risk! – War, revolution, inconvertible currency, embargo

• But there is commercial risk! – Foreign buyer can’t pay, files bankruptcy, disappears

What happens if they don’t pay?

Credit Insurance

Broker

Credit Insurance

Broker

Private credit Insurance

Solution #1 – The 95 Percent Solution

Problem #2 –

The case of the shrinking borrowing base

Problem #2 – The case of the shrinking borrowing base

• This firm is an active, growing exporter – Lots of export customers, distributors – Export A/R and export-dedicated inventory represent an

increasing share of balance sheet assets • Their long-time lender provides an asset-based line of credit

– But the bank excludes foreign A/R in calculating their borrowing base

– They heavily discount the value of export-related assets

So as export sales ↑ ↑ ↑, working capital gets tighter

Your Bank

Solution #2 – The case of the shrinking borrowing base

Credit Insurance

Sample Borrowing Base

Collateral No Loan Guarantee With Loan Guarantee

Export Collateral

Value Advance Rate

Borrowing Base

Advance Rate

Borrowing Base

Raw Material $200,000 20% $40,000 75% $150,000

Work in Progress $200,000 0% $0 75% $150,000

Finished Goods $600,000 50% $300,000 75% $450,000

Foreign A/R on Open Account

$400,000 0% $0 80% $320,000

Foreign A/R by Letter of Credit

$600,000 70% $420,000 90% $540,000

MAX LOAN $2,000,000 $760,000 $1,610,000

Problem #3 –

The case of the missing borrowing base

Problem #3 – The case of the missing borrowing base

• This firm is an exporter, but cash-in-advance has been its mantra – Foreign customers are pushing for terms – Losing some foreign buyers to the competition

• But offering terms will create a working capital squeeze – To offer terms, the business will need a WC loan

• Their lender is receptive, but this historically cash-in-advance-driven firm has no export A/R to borrow against

No export A/R → no borrowing base → no Asset-Based Loan….?

Your Bank

Your Bank

(direct)

Solution #3 – The case of the missing borrowing base

Problem #4 –

The case of the prepayment that wasn’t

Problem #4 – The case of the prepayment that wasn’t

• This firm is an exporter, but cash-in-advance is its mantra – The prepayment provides the working capital needed for

fulfilling purchase orders • A foreign buyer agrees to prepay, but their condition…

– A performance bond • The exporter asks their lender; they have a solution…

– A standby letter of credit – The cost? A bank fee and cash collateral maintained on

deposit = 100% of the face amount to the standby L/C

The exporter’s access to their prepayment WC is frozen!

Your Bank

Your Bank

Solution #4 – The case of the prepayment that wasn’t

Problem #5 – The case of the competitive exporter

• Exporter needs RE, M&E, debt refinancing…

• … anything to improve the competitive position of the exporter

Your Bank

Solution #5 – The case of the competitive exporter

Problem #6 – The case of the business that hated paperwork

• Exporter needs any or all of the solutions described above

• Loans up to $500,000

Your Bank

Solution #6 – The case of the business that hated paperwork

Problem #7 – The buyer without good banking options

• U.S. Exporting firm produces capital equipment

• Buyer favors their equipment, but has received a 5-year financing package from

U.S. firms’ foreign competition

• The machine is expensive and the buyer does not have cash on hand

• To finance machine using local bank would entail a high interest rate and a very

short term

The U.S. firm wants to win this order but can’t provide a 5-year financing package

Your Bank

Solution #7 – The buyer without good banking options

making exporting elementary… The game’s afoot!

Contacts

Sharyn H. Koenig Managing Director, Eastern Region Export-Import Bank of the U.S. 5835 Blue Lagoon Drive, Suite 203 Miami, FL 33126 T: 305-526-7436 X 17 F: 305-526-7435 OR 866-491-9157 www.exim.gov

Patrick Hayes, International Trade Finance Manager – Eastern U.S. SBA Export Solutions Group U.S. Export Assistance Center 600 Superior Avenue, Suite 700 Cleveland, OH 44114 216-522-4731 www.sba.gov/international

Edward J. Arnold PhD Trade Credit Insurance Agency, LLC 5373 Transit Road Williamsville, NY 14221 Tel: 716-932-7713 Cel: 716-481-9370 Fax: 716-408-5508 e-mail: Earnold@tciallc.com

John Vilardo, Vice President International Trade Finance One Fountain Plaza 12th Floor Buffalo, New York 14203 716-848-7344 phone 716-848-7318 fax 716-863-3486 mobile jvilardo@mtb.com