The first part of this two-part blog post series about EXIM’s Medium-Term Credit Insurance focused on the Supplier Credit structure where a U.S. exporter is the applicant. This part details the steps of a Buyer Credit structure where a commercial bank is the applicant and is seeking either Medium-Term Credit Insurance or a Medium-Term Loan Guarantee from EXIM.
The same hypothetical scenario from part one applies – an agricultural equipment manufacturer based in the U.S. would like to sell its products with a sales price of $9 million to a buyer in a foreign country. Because the financed loan amount is less than $25 million and the foreign buyer’s loan repayment tenure is greater than one year, the Medium-Term Credit Insurance and Loan Guarantee coverage parameters are satisfied (Loan Guarantees, unlike Medium-Term Credit Insurance, have no upper limit to the size of the export sale that may be financed).
The steps for the Buyer Credit structure are:
- The U.S. agricultural equipment exporter refers the opportunity to a commercial bank.
- The commercial bank and foreign buyer agree on terms and conditions of potential financing.
- The commercial bank submits either a Medium-Term Credit Insurance or a Medium-Term Guarantee application to EXIM.
- EXIM loan officers review the exporter’s application, conduct due diligence, and render a credit decision.
- If EXIM issues a Medium-Term Credit Insurance policy or Medium-Term Guarantee approval, the commercial bank will require the foreign buyer/borrower to execute an EXIM-formatted Promissory Note. A perfected security interest in the agricultural equipment to be financed may be required. Other common structures include requiring personal guarantees from the owners of the foreign company/borrower purchasing the equipment. Each transaction is underwritten based upon the creditworthiness of the borrower and accounts for the specific market conditions of the deal.
- The commercial bank requires the exporter to confirm receipt of 15% down payment of the $9 million contract value from the foreign buyer; shipment of equipment to the buyer; and also provide an exporter invoice, buyer purchase order, and bill of lading.
- The commercial bank may require the buyer to acknowledge in writing receipt, inspection, and acceptance of the equipment.
- The commercial bank disburses funds to the exporter, services the loan, and receives loan payments during the life of loan. EXIM cooperates with the commercial bank to monitor the credit during the life of the loan.
The Medium-Term Credit Insurance Policy or Guarantee will provide 100% coverage of the insured or guaranteed amount for all commercial and political risks.
Whether a Buyer Credit or Supplier Credit structure is used, Medium-Term programs should be a consideration for exporters of capital equipment that require longer repayment terms. For more information, contact an EXIM trade specialist.