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How to Calculate an Exposure Fee
July 28, 2016 Patricia Brewer

Exports are fundamental to your company’s growth. Financing foreign buyers involves complicated and detailed information requirements. Calculating the financing fees creates more confusion. As a small business, helping your customers is your biggest priority and understanding exposure fees directly contributes to your company’s strategic growth.

First, let’s define exposure fees. EXIM Bank provides U.S. businesses with financial products that protect their foreign sales from nonpayment, and allow them to access working capital loans to fulfill export sales. An exposure fee is the percentage of the loan guarantee or insurance policy that EXIM charges to cover the risk of nonpayment.

Understanding Exposure Fees

  • First and foremost, the exporter does not pay the exposure fee, the foreign buyer does. Additionally, the fee can be paid up front or included within the financed amount.

  • The exposure fee charged by EXIM covers the risk of nonpayment, represents the unique risks associated with your transaction and varies according your buyer’s risk profile. For example, your Mexican buyer is a small agricultural entity with limited cash, growing debt and experienced management. The exposure fee converts your buyer’s company and country risk to a number that quantifies the possibility of nonpayment. A similar buyer in another country (e.g., England) might have a different exposure fee reflecting its specific economics. 

Short-Term Insurance Exposure Fee Calculator

  • Calculating the exposure fee on our short- term single buyer trade credit insurance products is relatively straightforward. It is based on which country you are selling to, and the amount of time you have provided the foreign buyer to pay you back. Simply click on the dropdown from the EXIM website, choose the country, and the exposure fee will auto populate. Since trade credit insurance is based on the value of the invoice to the foreign buyer, you can estimate the dollar value by multiplying this percentage times the value of the invoice.

Medium-Term Guarantee and Insurance Indicative Fee Calculator

EXIM provides a Medium-Term Fee Calculator to help you estimate the indicative medium-term exposure fee. Start out by selecting a country, in this case we’ll choose Mexico. Further along the right are the indicative exposure fees for each Credit Classification (CC).

Moving down the table there are four options to reduce the indicative exposure fee. Answer yes or no to each depending on your transaction.

    1. Option A asks if there will be a corporate guarantor; for this example we will say yes, the parent-owner of the Mexican borrower is offering its corporate guarantee for the transaction.
    2. Mark Option B as yes if you will establish a deposit or reserve account. Deposit and reserve accounts accumulate additional cash which is held to cover debt payments if the buyer fails to pay as agreed.
    3. Answer yes to Option C if the lender will retain a percentage (typically 10%) of the risk for the loan. When a lender retains risk in a policy or guarantee, they have some ‘skin-in-the-game’ and demonstrate through their retention that the buyer is a company they are willing to back.
    4. The final options: Option D - Collateralization, and Option E - Security Interest in a Movable Asset, refer to liens on collateral.
      1. If collateral from a prior transaction is also collateral for the current transaction, answer yes to Option D.
      2. If a security interest or lien is being established and the equipment is movable, such as a plane, tractor, portable generator, then can answer yes to Option E.
      3. For this example, we will assume we cannot utilize collateral from prior transactions.
      4. Additionally, the equipment supported by the application is processing equipment which is not portable and requires installation.
      5. Therefore, the answer to Options D and E is no.

 After checking which options between A and D are applicable to the transaction, the Exposure Fee range is listed as Lower End Fee and Upper End Fee. Since we do not yet know the CC score for our Mexican buyer we will assume an Average Credit Classification or CC3. At a CC3 the Exposure Fee Lower Limit is 7.0% and the Upper Limit 7.4%. The indicative Exposure Fee is based on a five-year repayment and the variables you input. Actual fees are determined by EXIM staff upon approval of a completed application.  

Export financing can be complicated, especially when taking into consideration all the variables of countries and companies. If exporting is part of your company’s growth plan, understanding exposure fees help you guide your buyer to completing the sale. Make EXIM your partner and call on us for at 202-565-3946; or if you have questions about the exposure fee request a FREE Export Finance Consultation with one of our regional directors located throughout the U.S.

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EXIM’s Blog postings are intended to highlight various facets of exporting, but the postings are not legal advice, and are not intended to summarize all legal requirements associated with exporting.