Question: What is a Letter of Credit?

Answer: A Letter of Credit is an irrevocable mechanism for payment that substitutes credit. It is a document issued by a financial institution, typically a bank, which enables the recipient of the letter (the bank’s client) to draw sums of money totaling to a specific amount. The purpose of this document is to provide assurance on behalf of the customer to the supplier that he will receive payment for any goods he sells to the bank’s client.

However, the Letter of Credit does not represent a sales contact or a guarantee of payment. It does not serve as a protection against disreputable or noncredit-worthy customers. Letters of Credit are commonly used in association with long-distance, usually international, commercial transactions.

Question: What are some sources of financing?

Answer: There are many government and non-profit institutions that provide some type of financial assistance to small businesses. Your local bank usually offers financing, although some banks are skittish about lending against international business. The Small Business Administration (SBA) and the Export-Import Bank of the United States (Ex-Im Bank) offer a variety of trade finance, working capital, and insurance products to small businesses. The Overseas Private Investment Corporation (OPIC), which helps U.S. companies invest overseas. If you are seeking financing for your well-structured international transaction, contact Robert Elsas at (215) 597-6101.

Question: What are the major financing programs offered by the Small Business Administration?

Answer: The SBA finances the short-term and cyclical working capital needs of small businesses and administers business loan programs to help qualified small businesses obtain financing. The major loan programs that the SBA offers are:
The Export Working Capital Program (EWCP), which is designed to provide short-term working capital to exporters. The EWCP helps small businesses that not only are currently exporting but also have the potential to export.
Export Express, which combines lending and technical assistance to help small businesses that have difficulty in obtaining adequate export financing.
The International Trade Loan, which helps small businesses that are engaged or preparing for international trade as well as small businesses adversely affected by competition from imports.

Question: What is the difference between the SBA and the Export-Import Bank of the United States?

Answer: The SBA provides financial assistance to small businesses, whereas the Ex-Im Bank works with a wider variety of companies, ranging from small companies to big corporations. Some Exim’s services include export credit insurance, pre-export financing through working capital guaranteed loans to exporters, and medium- and long-term loans and guarantees to overseas buyers. The Ex-Im bank offers various programs to the business community, including regular seminars and group briefings at several locations around the country.

Businesses with loans not approved by the SBA, are encouraged to apply for loan programs at Ex-Im Bank.

Question: I wish to invest overseas. How can the Overseas Private Investment Corporation (OPIC) help me?

Answer: OPIC helps U.S. businesses invest overseas, fosters economic development in new and emerging markets, complements the private sector in managing risks associated with foreign direct investment, and supports U.S foreign policy. Because OPIC charges market-based fees for its products, it operates on a self-sustaining basis at no net cost to taxpayers. OPIC promotes U.S best practices by requiring projects to adhere to international standards on the environment, workers rights, and human rights.