In the fall of 2008, we experienced a worldwide financial crisis whose effects continue to ripple through the banking sector and economies around the world. The most significant resulting impact on most companies has been the lack of available credit from their bank. This has produced a double whammy for U.S. exporters: export orders are up due to a cheap dollar and low interest rates, but more clients are requesting terms; and most banks are not willing to provide financing to support the working capital needed to fulfill the new orders.

 

The U.S. government, through the Export-Import Bank (Ex-Im) and the Small Business Administration (SBA), has a long established program that was designed to specifically address this problem. The export working capital program (EWCP) provides a 90% guarantee to the lender for working capital financing used to support export orders. That means a bank can lend an exporter significantly more money at significantly less risk due to the U.S. government guarantee, just what they are looking for in the current economic situation.

 

The EWCP requires the lender to establish a separate line of credit that can be only used to support export orders. The line of credit can be transaction specific, if the exporter produces large pieces of capital equipment with a long production cycle, or a revolving line of credit. It is an asset based line so the lender advances against a collateral pool consisting of production destined for export and ultimately foreign account receivable.

 

From an exporter's perspective, the EWCP provides access to more capital through their entire cash cycle. This is because the EWCP allows the lender to apply higher advance rates to the loan collateral and to include as eligible, collateral that they would not normally advance against. Advance rates for inventory can be as high as 100% for raw materials and 75% for work-in-process and finished goods destined for export. Advance rates for foreign accounts receivable are 90%.

 

In situations where the exporter is producing capital equipment, they may be able to negotiate a significant down payment and perhaps milestone payments during the production process. The foreign buyer, however, may require a performance bond in the form of a standby letter of credit as a means to recover their money if the exporter does not ship. Under the EWCP the collateral requirement for the performance bond is only 25%, so the exporter still has access to 75% of the cash payments to finance production.

 

The EWCP is also available to indirect exporters who may not be exporting their products directly. If their product is a component and their client is a domestic company that will be incorporating that component into a finished product and that product will be exported, then the company can qualify for the EWCP as an indirect exporter.

 

So if you are exporting your products directly or if someone else is, the EWCP is an established program to give you access to more borrowing capacity through your entire cash cycle with your existing lender.