International Finance

Become familiar with the various government programs designed to help your company finance its export transactions, and give it the capital to carry out its export operations.

We recommend that you review this information and then contact your local Commercial Service Trade Specialists to discuss how these programs can help you achieve your international sales goals.

Financing

Do you need working capital loans? Does your foreign buyer need financing to buy your products? Do they prefer lease financing? Check out the U.S. Government International Financing Programs.

The U.S. Government offers four different types of financing programs:

To learn more and apply for these programs, please click on the link below each description.

The U.S. Government also provides finance related events and on-line training to further assist in exporting your products and services.

To receive counseling on how the programs listed below can help you achieve your international sales goals, please contact your local Commercial Service International Trade Specialist.

Export Development and Working Capital Financing: Enables U.S. businesses to obtain loans that facilitate the export of goods or services by providing the liquidity needed to accept new business, grow international sales and compete more effectively in the international marketplace.

  • Small Business Administration – Export Working Capital Program: Provides up to $5 million in short-term, transaction-specific working capital loans to U.S. small business exporters. Uses of this financing include: pre-export financing of labor and materials; and post-shipment financing of the accounts receivable generated from transaction-specific overseas sales. Learn more about Export Working Capital and apply…
  • Export-Import Bank – Working Capital Guarantee Program: Provides transaction-specific working capital loans to U.S. exporters, made by commercial lenders and backed by Ex-Im Bank’s guarantee. Uses of this financing include: purchasing finished products for export; paying for raw materials, equipment, supplies, labor and overhead to produce goods and/or provide services for export; covering standby letters of credit serving as bid bonds, performance bonds, or payment guarantees; and financing foreign receivables. Learn more about the Working Capital Guarantee Program and apply…
  • Small Business Administration – Export Express Program: Provides small businesses that have exporting potential, but need funds to cover the initial costs of entering an export market with up to $500,000 in export development financing to buy or produce goods or to provide services for export. The loan proceeds can be used for most business purposes, including expansion, equipment purchases, working capital, inventory or real estate acquisitions. Learn more about the Export Express Program…

Facilities Development Financing: Enables U.S. businesses to acquire, construct, renovate, modernize, improve or expand facilities and equipment to be used in the United States to produce goods or services involved in international trade.

  • Small Business Administration – International Trade Loan Program: Provides U.S. businesses that are preparing to engage in or are already engaged in international trade, or are adversely affected by competition from imports with up to $5 million in financing to upgrade equipment and facilities. Although this loan program can also be used to refinance existing indebtedness that is not structured with reasonable terms and conditions, it cannot be used as working capital. Learn more about International Trade Loans…

Financing for your International Buyers: Enables U.S. businesses to assist their international buyers in locating financing to purchase U.S. goods and services when financing is otherwise not available or there are no economically viable interest rates on terms over one-to-two years. This type of financing is generally used for financing purchases of U.S. capital equipment and services. Financing may also be available for refurbished equipment, software, certain banking and legal fees and certain local costs and expenses.

Investment Project Financing: Enables U.S. businesses to acquire financing for large-scale projects that require large amounts of capital, such as infrastructure, telecommunications, power, water, housing, airports, hotels, high-tech, financial services, and natural resource extraction industries.

Insurance

The U.S. Government offers U.S. companies Insurance and Risk Mitigation policies that cover export transactions and for overseas investments. Coverage includes losses for non-payment, currency inconvertibility, asset expropriation and political violence.

Grants

The U.S. Government provides grants to U.S. firms to conduct feasibility studies on infrastructure projects and to train the foreign business community and government officials on U.S. business practices, regulatory reform and other economic development activities.

New ways to finance trade

New-ways-to-finance-trade-2_mediumBy Jane Cooper | Published: 01 April, 2014 |

In response to restrictive regulation, trade finance securitisation deals are starting to materialise and, with these deals structured in such a way that they reduce risk weighting, lower leverage and increase liquidity, appetite for them is growing.

Banks are turning to new structures to finance trade, which is partly a response to Basel III regulations. Ironically, a consequence of the regulatory regime – prompted by the financial crisis – is that banks are considering offloading some of their safest assets and turning to securitisation, which acquired a bad name precisely because of the crisis.

“Trade finance securitisation has been a theme of discussions for a while, but only now are we seeing transactions materialise and happening,” says Axel Miller, a partner at consultancy Oliver Wyman.

Kah Chye Tan, global head of trade finance securitisation at JPMorgan, says the need for trade finance securitisation will grow in the years to come. This, he says, is because world trade will continue to grow, banks are now subject to more restrictions on their capital and “the need to find an additional source of liquidity will only be heightened”, and also because there is ample liquidity in the marketplace among institutional investors.

A Basel report estimates that up to one-third of the world’s trade is currently financed by the largest global banks. And data from Dealogic shows a mix of US, European and Japanese banks dominating trade finance in all regions, with emerging markets featuring prominently in the rankings. Asia relies the most on trade finance – data from Swift shows that the region accounts for the majority of import and export letters of credit (LCs) – and the Basel report notes this reliance is greater than the region’s share of global trade.

Public trade finance securitisation deals

Problem solving

In 2013, a handful of banks – BNP Paribas, Commerzbank, Citi and Santander – announced securitisation deals, which were a mix of synthetic deals and outright securitisations. One industry expert says that the structures are broadly trying to solve three different problems from a capital perspective.

The first problem is to reduce the risk weighting of the trade finance assets. If, for example, a bank has lent to a customer and the transaction has a high risk weighting, the bank can sell the risk to an institutional investor, such as a pension fund. The bank is effectively swapping the risk of its customer with the lower risk profile of the pension fund. This, in turn, reduces the risk weighting of the asset and thus the amount of capital the bank needs to set aside for it. This synthetic structure – where the assets remain on the balance sheet of the bank – was used for Standard Chartered’s ‘Sealane’ deals in 2007 and 2011, and also Commerzbank’s ‘Co-Trax Finance II-1’ transaction in 2013.

Trade finance deals

Hans Krohn, head of trade products at Commerzbank, says that the purpose of the Co-Trax Finance II-1 deal was to reduce the bank’s risk-weighted assets after a stress test in 2012 revealed that the bank had to increase its capital. To make the capital ratios better, he adds, the bank decided to offload the assets rather than stop lending to its clients.

The second problem that banks may need to solve is one of leverage. Even though import LCs are off-balance-sheet and are viewed as a guarantee, under Basel III this has to have an on-balance-sheet equivalent to cover the risk of a small and medium-sized enterprise, for example, not paying. Under the new regulations, the industry observer explains, the leverage ratio of such transactions is capped and banks may choose to securitise their trade assets to lower their leverage, rather than provide additional capital against them. This also has the knock-on effect of also lowering their risk-weighted assets.

In the first of the examples, the bank can reduce its risk-weighted assets on an unfunded basis, but in the second example – of securitising to reduce leverage – the transaction must be funded. This leads onto the third problem that banks may try to solve, which is one of liquidity. In the second example, when the pension fund is providing the bank with cash for the transaction, this also helps the bank meet its liquidity requirements under Basel III.

Putting trade on the map

The funded, true-sale securitisation structure was used for the transactions by BNP Paribas, Citi and Santander. The ‘Lighthouse’ transaction, launched by BNP Paribas in August 2013, was backed by commodity trade finance loan receivables. The deal, says Fabrice Susini, global head of securitisation at BNP Paribas, is a child of the current regulatory environment in which banks are under pressure – in terms of their liquidity, leverage ratios and regulatory capital – and want to keep servicing their clients.

Tim Conduit, a partner at law firm Allen & Overy, who advised BNP Paribas on the Lighthouse deal, explains that the structure allows the individual assets to be divided up into different risk brackets. The structure has flexibility in it so investors can be exposed to a certain type of risk, for example, by company, country or industry.

Flexibility is a feature of Trade Maps, a multi-bank asset participation programme launched by Citi and Santander in December 2013. Konel Parekh, director of specialised trade at Citi, says the outstanding loans range from $3000 to $30m and the flexibility is not just in the size of the obligor, but also the range of jurisdictions that can feed into the asset pool.

The $1bn inaugural issue of Trade Maps was significant because it was the first multi-bank transaction. When asked why Citi partnered with another bank for this transaction, Mr Parekh says: “We are all competitors but when it comes to efficient balance sheet management, there is no restriction on us working together and opening up a new investor base and to create efficient pricing for everybody.”

Fabio Fagundes, head of trade asset mobilisation for Santander, says it is technically possible to have many banks on the Trade Maps structure. However, getting all the banks to the finish line for one issuance is more difficult. “The risk embedded in the structure is very simple short-term trade finance. The operations and legal requirements for this kind of project, with many different jurisdictions, has been quite cumbersome so it will take time for banks to deploy this structure on their own or to join Trade Maps,” he says.

The Trade Maps project was first announced by Citi in 2010, and ING and Santander joined the project in September 2011. By the time the deal was launched, however, ING had dropped out. An ING spokesperson says: “ING decided not to continue with the transaction for several reasons, including adverse market conditions.”

There are many complexities to structuring such a deal. Paul Kruger, a partner at law firm Linklaters, who worked on the Trade Maps deal, says the main issue with this asset class is its diversity, with assets being spread across the world. Unlike an auto loan or residential mortgage securitisation with a single jurisdiction, “here you may be dealing with 50 jurisdictions coming into one deal”, he says.

Mr Conduit at Allen & Overy points out that, unlike mortgages where the loan is secured against a property, “the collateral could either be on the high seas or in an unfamiliar jurisdiction”.

Quality control

Mortgages also have a long duration, which makes the management of the asset pool relatively simple. Trade finance, however, is short term and can be between 30 and 90 days. Such a term is impractical for investors and so the securitisation is structured so that the pool of trade finance assets is constantly replenished.

Mr Miller at Oliver Wyman says that maintaining the quality of the assets in the pool is a challenge. He illustrates this point by comparing this asset class with infrastructure project finance, where there could be a 20-year duration and due diligence is only on a single project.

“In trade finance it is short duration and replenishing,” says Mr Miller. “As an investor, you cannot do that due diligence on the underlying asset in the same way [as infrastructure project finance], which makes it more difficult. The eligibility criteria and transparency is key. How do you manage the inflow of assets? If you have a bank originating the trade assets and putting them in a conduit, there is an adverse selection issue: you would suspect that a bank puts assets it does not want into the conduit. How do you create, as the originator, a structure and transparency that allows that not to happen, and how can you prove that to the investors?”

Deals such as Trade Maps and Lighthouse have been created with this kind of disclosure in mind. The eligibility criteria, for example, includes limits on the proportion of assets from certain countries or client types. “The eligibility criteria is stringent,” says Mr Susini at BNP Paribas. He adds that even though these are short-term transactions, they are based on long-term, stable relationships between the bank and its clients.

Gregory Kabance, managing director of Latin America and emerging markets structured finance at Fitch Ratings, says there are robust scoring mechanisms in place, and the rating is based on considering the worst-case scenario of what could go wrong.

Risk assessment

Trade finance is considered to be low risk, and figures from the International Chamber of Commerce’s (ICC’s) 2013 trade register show that import LCs had a transaction default rate of 0.02% and export LCs a rate of 0.016%. Another reason trade finance is viewed as a good-quality asset is because it has a history of being supported – because it is the life blood of an economy – in times of crisis. “Trade finance has been treated favourably in the past – even when a sovereign defaults it rarely defaults on trade finance,” says Mr Kabance.

However, low risk also means low return for investors. Given the costs of setting up a securitisation platform, is there the potential for the low-risk profile of trade finance to change? And as more investors channel liquidity into this asset class, is there the potential for banks to be less careful about who they are lending to?

“The moment we enter into this type of structure where financial engineering is involved, there is suspicion, which – in the case of trade finance-related securitisations – is unfounded in my opinion,” says Mr Krohn at Commerzbank.

Tod Burwell, president and CEO of industry body BAFT-IFSA, responds to the comparisons that are made with the securitisation of subprime mortgages. “I don’t think anyone expects this to drive another crisis. In terms of the types of assets originated and the types of assets being distributed to institutional investors, the industry is very sensitive to that and there has not been a practice of offloading assets that the bank does not want – there is an interest in maintaining the integrity of the asset pool,” he says.

A report by the Basel Committee on the global financial system addresses the risks of securitisation and notes that “in principle, banks have incentives to maintain their reputations for originating high-quality assets, so as to maintain the returns on their origination expertise. Yet the experience during the recent crisis suggests that these incentives can be compromised by competitive pressures, eroding underwriting standards. In addition, information flow can suffer along the securitisation chain and, in the event of deteriorating asset quality, investors may find it difficult to distinguish the roles played by adverse business conditions versus weakened underwriting.”

Forward thinking

Volume of letters of credit sent per region

One major difference with trade finance is that because it is short term, problems would be identified much quicker than with mortgages. “These are short-term assets so the sales teams in origination are on top of the market,” says Mr Parekh at Citi, adding that these teams are able to detect the first signs of stress any obligor might face.

“In the next 12 to 24 months, if there is a larger number of securitisations we might see a reaction from the regulators,” says Mr Krohn. “My guess is that if banks get active and inventive we will see more regulations put in place,” he adds. Restrictions have already been put in place. For example, a bank cannot reduce the risk-weighted assets via securitisations at any cost. “If costs exceed the income from the reference pool, the regulator will not give consent to use the instrument for risk-weighted assets reduction,” says Mr Krohn.

Paul Hare, global head of portfolio management at Standard Chartered Bank, believes that regulation is a major hurdle for trade finance to become more widespread. “For synthetic securitisation structures, such as Sealane, the main hurdle is regulation. If implemented, the recent Basel Committee consultation paper on securitisation [CP269] will reduce the amount of capital relief that can be claimed and as a result, some banks may find the cost of synthetic trade finance securitisation transactions too prohibitive,” he says.

But, despite the difficulties and the complexities, many in the industry are optimistic of the future of this new asset class.

Alberto Amo, global head of trade finance at Santander, says: “When we started [the Trade Maps project] we thought were going to have to do a lot of investor eduction. In the past few years, we as an industry have done many initiatives, such as the ICC trade register and product terminology standardisation with BAFT-IFSA, and that helped investors understand this asset class. We were surprised how well the investors received [Trade Maps] and understood it better than we expected – this is good news for the industry. Investors know more about trade and are demanding to be part of the trade finance world.”

Export-Import Bank On Record Pace For Export Financing

By Phoenix Business Journal

WASHINGTON — The Export-Import Bank is on its way to setting another record for financing sales of U.S. products overseas.

Through the first six months of the fiscal year, the federal agency provided $13.4 billion in direct loans, loan guarantees and credit insurance to U.S. exporters and their customers overseas. Last year, it provided a record total of $24.5 billion in export financing. I am confident we’ll have another record-breaking year, said Fred Hochberg, chairman and president of the Ex-Im Bank. One way the bank is boosting its numbers — and furthering President Barack Obama’s goal of doubling U.S. exports by 2015 — is by getting more small businesses to take advantage of its export financing products. Last year, $5.1 billion of the Ex-Im Bank’s transactions benefited small businesses, up 58 percent from two years earlier. For the past two years, the agency has met its congressional mandate of providing at least 20 percent of its financing dollars to deals that benefit small businesses. The small-business share of Ex-Im Bank deals should increase further this year, Hochberg said. The agency is sponsoring a series of 20 forums across the country to educate small exporters about its products. It also has begun providing working capital financing to indirect exporters – businesses that supply products or services to larger U.S. exporters. In addition, it has offered a new streamlined credit insurance program for small businesses that cuts the processing time for this product from 15 days to five days. Although small businesses accounted for 20.7 percent of Ex-Im Bank financing dollars last year, they accounted for 85 percent of the agency’s total number of transactions. As a result, Ex-Im Bank resources are being strained because small-business owners need much more one-on-one work on those transactions.

It is a real challenge to meet the 20 percent threshold each and every year based on the resources we have, Hochberg told the Senate Banking Committee, which is working on legislation to reauthorize the agency.

Hochberg said Congress needs to allow the agency to keep more of the money it generates from its fees to cover administrative expenses. The Ex-Im Bank has been self-sustaining since 2008, and it has returned $3.4 billion to the U.S. treasury over the past five years.

Critics, however, consider the Ex-Im Bank’s deals to be a form of corporate welfare. Citizens Against Government Waste this year called for elimination of the agency.  The Export-Import Bank is one more example of the government’s willingness to continue to expose taxpayers to risk while allowing private companies to reap the benefits, said CAGW President Tom Schatz. It provides politicians with easy handouts dressed up as job creation, but it’s corporate welfare through and through. The loan-loss rate on the Ex-Im Bank’s loans, however, is only 1.5 percent — well below most commercial banks, Hochberg said. So the risk to taxpayers is low, at least for now. Some critics have called the agency Boeing’s bank, because that aerospace giant has been a frequent beneficiary of Ex-Im Bank financing. This month, for example, the agency provided a $700 million direct loan to finance the sale of satellites by Boeing Space and Intelligence Systems in El Segundo, Calif., to Immarsat, a London-based provider of mobile satellite communications services to the maritime industry. Hochberg said the loan enabled Boeing to win the contract over a foreign competitor that also was backed by an export credit agency. The Ex-Im Bank’s mission, he said, is to make sure financing is never an impediment when U.S. companies are competing for foreign sales. The Boeing loan will help the company and its many small-business suppliers maintain jobs in California and around the country, Hochberg said. 

Infinia Corp., a 145-employee solar power company in Kennewick, Wash., is one example of a small business that has benefited from Ex-Im Bank financing. The agency authorized a $30 million loan in March to Dalmia Solar Power Ltd. in India to finance the purchase of Infinia’s modular solar electricity system.

Ex-Im Bank’s support was absolutely essential for providing the long-term financing needed to move this project forward, said J.D. Sitton, who was Infinia’s CEO at the time.

What: Official export credit agency of the U.S. Products: Provides direct loans, loan guarantees and export credit insurance. 2010 financing volume: $24.5 billion. Small-business transactions: $5.1 billion. Loan-loss rate: 1.5 percent. Cost to taxpayers: Zero — Ex-Im covers expenses through fees charged to borrowers. Copyright 2011 American City Business Journals

Global trade is slowing

 Global trade is slowing

Japan posts dismal export figures; global trade will decline in 2009, the first drop since 1982.

THE latest figures on Japanese exports, released this week, make for grim reading. Exports, an important driver of the Japanese economy, were 7.7% lower in October than they were a year earlier. That drop, the biggest in nearly seven years, is just the latest piece of bad news for the Japanese economy, which officially fell into recession this

It surprises nobody that Japanese exports to rich countries are down: they have been flat or falling for some time, with exports to North America, for example, failing to grow in 2007. More troubling is evidence that emerging-economy demand for Japanese goods has now also been hit. Exports to Asia are down by 4% and those to China fell for the first time in three years.

In the past few years Japan has come to rely, increasingly, on demand for its exports from developing and emerging markets. In 2007 its exports to Latin America and Africa grew by 25% and 22% respectively and exports to the rest of Asia, accounting for half of its total exports, rose by 12%. Now evidence is growing that the developing world is increasingly battered by the economic slowdown and so is losing its appetite for Japanese goods.

Rich countries in general, many of them already grappling with recessions, must now deal with the fact that trade is slowing: the World Bank expects global trade to decline by 2.5% in 2009, the first drop since 1982. Germany, which is also in recession, has seen exports badly hit. Rich-country exports are typically of expensive, complicated goods, demand for which is highly elastic—for example German heavy machinery or Japanese cars (exports of the latter fell by 15% in October).

What of the export prospects of countries that make the cheap clothes and other necessities that people keep buying even in lean times? Poorer countries have been accounting for larger shares of global trade flows in the past decade. The likes of China and Bangladesh, countries which supply discount retailers such as Wal-Mart, should expect to see exports faring better. Wal-Mart claims that it accounted for half of American retail growth (excluding car sales and restaurants) in October, which suggests poorer exporters may have a chance to shine.

Unfortunately, this picture is not rosy either. Although demand for poor-country exports may be holding up, trade finance (loans directly tied to cross-border transactions) is disappearing. Developing economies depend heavily on trade credit for finance, but the market for this has been severely battered by the global shortage of liquidity. In addition, banks which lend in this market have generally become more risk-averse (probably beyond reason). The World Trade Organisation estimates that there is currently excess demand in the trade finance market of up to $25 billion. It has convened meetings of export credit agencies and banks to try and get the market going again, and the World Bank’s private-sector wing, the International Finance Corporation, will double the ceiling on trade guarantees available under its trade facilitation programme to $3 billion.

Others are stepping in, too: The Reserve Bank of India has more than doubled the funds it makes available for banks to refinance export credit at favourable interest rates to $4.5 billion. Still Pascal Lamy, who heads the WTO, says that he expects the situation to deteriorate further. The Japanese and German export figures, grim as they are, may just offer a taste of the broader slowdown in trade that is under way.

Trade financing will get a whole lot easier

Preeti R Iyer Sep 12, 2006, 03.04am IST

MUMBAI: Exporters will soon be able to realise export proceeds in days instead of weeks. Banks are working on dematerialising the letter of credit (LC) and documents that accompany it. As against the current practice where the exporter has to physically transmit the letter of credit among bank branches, LCs will soon be sent across bank branches in an electronic format to prevent practices of defrauding and ensure security.

The State Bank of India (SBI) and ICICI Bank have joined hands with the Indian Banks’ Association (IBA) to conduct a pilot project on trade finance. Through this model, banks will use the structured financial messaging system (SFMS) network for verifying trade-related documents.

The model expressly aims to avoid paperwork and improve the speed and efficiency of trade-finance related transactions. The other banks that are partnering with the IBA are HDFC Bank, Union Bank, IDBI and Central Bank of India.

Said a senior IBA official: “This would help improve the speed and efficiency of transactions involving disbursal of trade finance. As of now, it takes anywhere between a couple of days to a week’s time for a borrower company to get its documents verified because it entails physical movement of papers across different banks or even, different branches of the same bank. Also, for banks whose branches are already RTGS-enabled, this would not be expensive.”

IBA officials pointed out that this model could be extended to cover areas such as lines of credit, guarantees and bill discounting. The association is currently working out the details of procedural and operational norms for banks to implement the model. The IBA has also formulated a group comprising member bankers in order to examine the ways and means to extend SFMS, which is an alternative to the SWIFT system, to include applications such as instrument clearances and lines of credit requests.

Currently, 23,000 branches are already RTGS-enabled and hence, possess the digital certification and card readers needed for processing such transactions. Under the pilot project, these banks would send test messages to each other and deploy 10% of their individual branch networks in the project. For non-RTGS enabled branches, banks will have to shell out a fee towards procurement of the digital certification from the Institute of Development and Research in Banking Technology (IDRBT).

The model evolved by the IBA in conjunction with these banks is looking at utilising the structured financial messaging system (SFMS) to facilitate online communication over a secure network. It would involve usage of the INFINET network, a satellite-based area network using VSAT (Very Small Aperture Terminal) technology.

A senior banker explained that when original documents are sent for verification, there is a strong likelihood that these papers could get defrauded on their way. Through SFMS, we can devise a mechanism wherein only the crucial data content is captured at the time of scanning and then, their images can be sent to the other bank involved in the transaction. Once this branch receives the scanned images, it can confirm the receipt and thus,the former bank can disburse the payment.

Arvind Sonmale, MD and CEO, Global Trade Finance, said, “This system will prove to be more helpful in the domestic market than the international one as the local market requires less documentation whereas under international transactions, regulatory authorities insist upon original documents.”