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Finance Bid and Performance Bonds to Grow Your Business
December 28, 2017 Elizabeth Thomas, Business Development Specialist, Office of Small Business

Is your foreign buyer requiring you to post a bid or performance bond? Is the cost of bid and performance bonds hindering the ability to grow your business? EXIM Bank can help.

Usually, bid or performance bonds are issued in the form of a stand-by letter of credit (L/C) opened by the exporter in favor of the buyer. The exporters’ lender will usually require collateralization of the full amount of the stand-by L/C. Exporters may need to borrow the money to post the stand-by L/C, and if this loan is guaranteed by EXIM Bank, the stand-by L/C need only to be collateralized at 25 percent!

Let’s look at an example:  A buyer requires a $100,000 stand-by L/C as a guarantee of the exporters’ performance under a contract. Normally, the U.S. bank issuing the L/C will require the exporter to deposit $100,000, or to use $100,000 of their credit line with that bank, to cover the full amount of the L/C.  By borrowing the $100,000 from the bank, and having EXIM guarantee that lender, the L/C only needs to be collateralized at 25 percent, or $25,000 in this example, freeing up $75,000 for other uses.

EXIM's covers lenders with its Working Capital Loan Guarantee. A working capital loan guarantee from EXIM is a guarantee to a commercial lender that makes a loan to a U.S.-based company in support of exporting activities. EXIM doesn’t replace your bank; we work with commercial lenders, providing a loan guarantee that backs the borrower’s debt in the event something goes awry. With the certainty of a guarantee in hand, your commercial lender extends the loan, improving your company’s cash flow to grow its international business. In addition to collateralizing a stand-by L/C at 25 percent, funds from the working capital loan guarantee can be used to buy goods or hire labor to fulfill an international order and/or pay off existing loans.

How a Working Capital Loan Guarantee Works

  • You want to pursue a project, but need cash for the bid or performance bond.
  • You apply for a working capital loan, but your bank is uncomfortable making the loan because your collateral is export-related.
  • Your EXIM-approved, participating bank applies for an EXIM working capital loan guarantee on your behalf, and submits the paperwork and financial information needed.
  • EXIM works with your lender and guarantees the loan, promising to cover 90% of the loan.
  • Your bank loans you the money and you use the funds to fulfill your export sale.

Key Qualifications

  • Exporters should have a successful operating history and a positive net worth.
  • Products must contain more than 50 percent U.S. content
  • Products must be shipped from the United States

Do you want to learn more about increasing liquidity and competing more effectively in international marketplaces? Contact your local EXIM representative for a free consultation.

Get a Free Export Finance Consultation Today!