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Financing offered by commercial lenders on export inventory and foreign accounts receivables is not always sufficient to meet the needs of U.S. exporters. Early-stage small and medium-sized exporters are usually not eligible for commercial financing without a government guarantee. In addition, commercial lenders are generally reluctant to extend credit due to the repayment risk associated with export sales. In such cases, government-guaranteed export working capital (EWC) loans can provide the exporter with the liquidity to accept new business, help grow U.S. export sales, and let U.S. firms compete more effectively in the global marketplace. Two U.S. Government agencies–the U.S. Small Business Administration (SBA) and the U.S. Export-Import Bank (Ex-Im Bank)–offer loan guarantees to participating lenders for making export loans to U.S. businesses. Both agencies focus on export trade financing, with SBA typically handling facilities up to $5 million and Ex-Im Bank processing facilities of all sizes. Through these government-guaranteed EWC loans, U.S. exporters can obtain financing from participating lenders when commercial financing is otherwise not available or when their borrowing needs are greater than the lenders’ credit standards would allow.
Applicability |
Recommended when commercial financing is otherwise not available or when pre-approved borrowing capacity is not sufficient |
Risk |
Exposure of exporter to the risk of non-payment without the use of proper risk mitigation measures |
Pros |
|
Cons |
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Table 3 is an example of how a government-guaranteed export loan from a lender participating with SBA or Ex-Im Bank can increase your borrowing base against your total collateral value. Advance rates may vary depending on the quality of the collateral offered.
Borrow up to $1.65 million against your collateral value of $2 million |
Commercial Facility Without a Government Guarantee |
Commercial Facility With a Government Guarantee | |||
COLLATERAL |
VALUE |
Advance Rate |
Borrowing Base |
Advance Rate |
Borrowing Base |
Export Inventory |
|||||
Raw Materials |
$200,000 |
20% |
$40,000 |
75% |
$150,000 |
Work-in-Process |
$200,000 |
0% |
$0 |
75% |
$150,000 |
Finished Goods |
$600,000 |
50% |
$300,000 |
75% |
$450,000 |
Export Accounts Receivable |
|||||
On Open Account |
$400,000 |
0% |
$0 |
90% |
$360,000 |
By Letter of Credit |
$600,000 |
70% |
$420,000 |
90% |
$540,000 |
Total Collateral Value |
$2,000,000 |
||||
Total Borrowing Base |
$760,000 |
$1,650,000 |
Table 3: Government-guaranteed loans increase your borrowing power
For more information, visit the SBA Web site at www.sba.gov/international and click on the dropdown menu for SBA Export Programs or call 1-800-U-ASK-SBA (8-275-722).
For more information, visit the Ex-Im Bank Web site at www.exim.gov or call 1-800-565-EXIM (3946).
Government guarantees on export loans do not make exporters immune to the risk of non-payment by foreign customers. Rather, the government guarantee provides lenders with an incentive to offer financing by reducing the lender’s risk exposure. Exporters may need some form of risk mitigation, such as export credit insurance, to offer open account terms more confidently.