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  • 1. 1Export Trade Finance &Insurance SeminarTrade ConnectInternational Trade Finance:A Banker’s PerspectiveGlobal Trade Cycle FinancePresented by:Caroline BrownFVP, Trade Finance OfficerInternational Trade Finance, Western MarketMay 8, 20131
  • 2. §  Intro to Comerica Bank§  Tools/Goals of Trade§  Overview of Global Trade Cycle§  Methods of Payment§  Global Trade Cycle SolutionsObjective
  • 3. Comerica Bank –An Overview3
  • 4. Comerica Bank – An Overview§  Headquartered in Dallas, Texas.Locations in Arizona, California,Florida and Michigan, with selectbusinesses operating in several otherstates, as well as in Canada andMexico.§  $59.3 billion in total assets as ofDecember 31, 2009§  #559 among Fortune’s largestcompanies§  #12 among banking companies withthe most commercial and industrialloans (American Banker)§  Among the top 10 Ex-Im Bank workingcapital lenders§  #30 among DiversityInc “Top 50Companies for Diversity” in 2009Comerica Bank – An Overview
  • 5. §  Leading Letter of Credit Provider within U.S. Comerica ranks #9among the top U.S. commercial banks, in letter of credit outstandings.1§  Leading Lender for Ex-Im Bank Working Capital Guarantee Program.Comerica ranks #7 among the top 10 lenders.2 We hold the “Super”Delegated Authority and “Fast Track” lender designations.§  Foreign Correspondent Bank Network. Comerica has coveragethroughout Asia, Europe, Latin America, the Middle East and Africa.§  Strong Credit Ratings. Comerica has strong credit ratings -- required forthe acceptance of a Standby Letter of Credit. Present Ratings -- “A1” byMoody’s, and “A” by Standard & Poor’s and Fitch Ratings.1 Source: Documentary Credit World (FDIC Statistics on Banking), 1st Quarter 20092 Source: Ex-Im Bank, FY 2009Key FactsComerica Bank – An Overview
  • 6. Trends/Goals in Trade6
  • 7. §  Global Trends§  Primary Goals•  To optimize working capital•  To mitigate key risks•  To reduce costs•  To simplify the trade processTrends/Goals in TradeCompany
  • 8. U.S. Exports and ImportsOver the last decade, there has been steady growth inglobal trade---U.S. exports grew 35% and U.S. importsgrew 28%.U.S. Exports and Imports2000-2009Value  in  thous ands  ($ US D )0200,000,000400,000,000600,000,000800,000,0001,000,000,0001,200,000,0001,400,000,0001,600,000,0001,800,000,0002,000,000,0002,200,000,0002,400,000,0002000 2001 2002 2003 2004 2005 2006 2007 2008 2009Exports ImportsSource: International Trade Administration Note: Import data is not available by state Source: International Trade Administration, TradeStats ExpressU.S. StatsComerica’s Footprint -- 40% of Total ExportsIn 2009, Comerica’s footprint represented 40% of totalU.S. exports. TX is the #1 export market, followed byCA, #2 (11% of total exports), FL, #5; IL, #6; MI, #9;and AZ, #24.#2#24#1#9#5#6020,000,0 0040,000,0 0060,000,0 0080,000,0 00100,000 ,000120,000 ,000140,000 ,000160,000 ,0002000 2001 2002 2003 2004 2005 2006 2007 2008 2009California Exports2000-2009Value in thousands ($USD)ExportsTrend/Goals in Trade
  • 9. California StatsCalifornia Depends on World MarketsCalifornia’s export shipments of merchandise in 2009totaled $120 billion, ranking California second only toTexas ($163 billion) among the states in terms of totalexports in 2009.California Exports1999-2007V alue  in  thousands  ($US D)020,000,00040,000,00060,000,00080,000,000100,000,000120,000,000140,000,000160,000,0001999 2000 2001 2002 2003 2004 2005 2006 2007ExportsExports – Top Trading PartnersThe state’s top 10 trading partners are:(figures in thousands, $USD)§  Mexico 17,484, 818§  Canada 14,280,022§  Japan 10,905,099§  China 9,742,859§  South Korea 5,944,788§  Hong Kong 5,803,780§  Germany 4,442,225§  Taiwan 4,120,871§  United Kingdom 3,916,277§  Netherlands 3,567,219Source: International Trade Administration, TradeStats ExpressNote: Import data is not available by stateSource: International Trade Administration, TradeStats ExpressNote: Import data is not available by stateCalifornia Exports2000-2009Value  in  thous ands  ($ US D )020,000,00040,000,00060,000,00080,000,000100,000,000120,000,000140,000,000160,000,0002000 2001 2002 2003 2004 2005 2006 2007 2008 2009ExportsTrend/Goals in Trade
  • 10. Overview –The Global Trade Cycle10
  • 11. “Global Supply Chain”“Supply Chain Management”“Trade Cycle Financing”“Supply Chain”“Physical and Financial Supply Chain”“Global Trade Cycle”Buying and selling process between companies.Overview - The Global Trade Cycle
  • 12. Overview - The Global Trade Cycle
  • 13. Effective management of the global trade cycle provides numerous benefits:IMPORTER (BUYER) BENEFITS EXPORTER (SUPPLIER) BENEFITS§  Optimize working capital§  Improve cash flow forecasts§  Take advantage of supplier discount terms§  Improve supplier relations§  Increase Days Payables Outstanding (DPO)§  Optimize use of credit capacity§  Reduce costs§  Interest rate and capital arbitrage§  Reduce working capital needs by using betterinventory control and cash flow management§  Improve sales forecasts§  Lower financing rates on required working capital§  Reduce Days Sales Outstanding (DSO)§  Manage buyer credit risk more effectively§  Reduce costs§  Interest rate and capital arbitrageBenefitsOverview – The Global Trade Cycle
  • 14. Tools & Methods ofPayments14
  • 15. Methods of PaymentThere are four primary methods of payment for global transactions, with thelevel of risk varying for each.Tools & Methods of Payment
  • 16. The evaluation of risk in global commerce plays a major role in determiningthe method of payment to be used for settlement between buyer andsupplier.RISK EXAMPLESCountry / Political Risk §  Economic instability, government restrictions on payment, war, embargoCommercial Risk §  Insolvency, unscrupulous buyers, fraudCurrency Risk §  Convertibility of currency, exchange controlsTransportation Risk §  Timeliness of delivery, piracy, pilferage, unions, loss of productDocumentary Risk §  Wrong documents, improperly prepared documents, incomplete documentsForeign Bank Risk §  Insolvency, creditworthinessProduct Risk §  Quality, quantityTypes of RiskOverview - Global Trade Cycle
  • 17. §  Letters of Credit:§  Commercial Letters of Credit§  Standby Letters of Credit§  Documentary Collections§  Financing:§  Direct Bank Financing§  Bankers’ Acceptances (BA)§  Trade Acceptances§  Ex-Im Bank Working Capital Guarantee Program (WCGP)§  Private Insurance§  Private Export Funding Corporation (PEFCO)§  Online Solutions:§  Comerica GlobalTRADE Web§  Comerica TM Connect Web§  Comerica eFXGlobal Trade Cycle SolutionsTools & Methods of Payment
  • 18. SOLUTION DESCRIPTION§ Commercial Letters of Credit • Irrevocable undertaking by a bank on behalf of its customer in favor of adesignated beneficiary, under which payment is effected only if the beneficiarypresents documents in accordance with the letter of credit terms and conditions.• Often referred to as Import Letters of Credit and Export Letters of Credit or TradeLetters of Credit.• Confirmed Export Letters of Credit provide additional protection to exporters.(Note: Bank deals only with documents, not goods.)§ Standby Letters of Credit • Performance Standby Letter of Credit: Irrevocable undertaking by a bank to makepayment to a designated beneficiary in the event that its customer fails to performa non-financial contractual obligation (e.g., cover performance of contractors/suppliers, in lieu of a bid or performance bond).• Financial Standby Letter of Credit: Irrevocable undertaking by a bank to makepayment to a designated beneficiary in the event that its customer fails to fulfill afinancial contractual obligation (e.g., support advance payment/paymentguarantee, in lieu of cash or security deposit, support IRB/EDC).Letters of CreditTools & Methods of Payment
  • 19. SOLUTION DESCRIPTION§ Documentary Collections • Buyer: Bank receives documents conveying title to goods from foreign bank anddelivers documents to its customer in exchange for payment or promise to pay ata future date.• Supplier: Bank delivers documents conveying title to goods to foreign buyer’sbank for delivery to its customer in exchange for payment or promise to pay at afuture date.Documentary CollectionsTools & Methods of Payment
  • 20. SOLUTION DESCRIPTION§ Ex-Im Bank WorkingCapital GuaranteeProgram (WCGP)• Working capital loans backed by Ex-Im Bank guarantee (90% of loan amount, includingprincipal and interest). Enables U.S. exporters -- large and small -- to facilitate the exportof goods and services.• Comerica holds:•  “Super” Delegated Authority lender designation (allowing us to commit credit facilitiesup to $10 million per borrower, without pre-approval from Ex-Im Bank); and•  “Fast Track” designation (allowing us to commit credit facilities greater than $10 millionand up to $25 million per borrower, with expedited Ex-Im Bank approval).§ SBA Export WorkingCapital Program (EWCP)• Working capital loans for small businesses backed by SBA guarantee (guaranteesrepayment of up to $1.5 million or 90% of loan amount, whichever is less). Similar to theEx-Im Bank WCGP, however, no U.S. content or military/defense product and servicerestrictions.FinancingTools & Methods of Payment
  • 21. Questions and AnswersCaroline BrownFirst Vice PresidentTrade Finance OfficerLong Beach, CA562-590-2525CVBrown@Comerica.com
  • 22. Thank You!22
  • 23. Risk  Migaon  in  Export  Finance    Nous  Sommes  Tous  comme  le  ble  dans  les  champs.  Chacun  unique,  Chacune  la  meme.  
  • 24. Overview  •  Start  with  due  diligence  •  Negoate  appropriate  terms  of  sale  •  Use  insurance  to  reduce  risk  
  • 25. Know  Your  Customer  •  Who  and  Where  –  Special  issues  related  to  internaonal  relaonships  •  Tax  ID  Number    •  Internaonal  Credit  Reports  •  Tradional  Methods  –  Trade  references  –  Site  visits  •  Financial  Statements  
  • 26. Negoate  Terms  of  Sale  •  Not  one  size  fits  all  – Cash  in  advance  – LeNers  of  credit  – Documentary  collecons  – Hybrid  terms  – Credit  Cards  – Open  account  
  • 27. Credit  Insurance  •  What  is  Credit  Insurance?  – How  does  credit  insurance  work?  – Basic  Insurance  assumpons  •  Applied  to  credit  insurance  – Risk  protecons  offered  •  Insolvency  •  Protracted  default  •  Polical  risks  
  • 28. Why  Credit  Insurance  •  Flexible  tool  –  Risk  protecon  –  Financial  leverage  •  Buyer  advantages  –  Least  cost  financing  •  Seller  advantages  –  Enhanced  collateral  posion  with  lender  »  Foreign  receivables  »  Concentraons  of  risk  –  Backup  or  replacement  of  internal  credit  process  –  Lower  administrave  burden  than  documentary  collecons  
  • 29. Who  Offers  Credit  Insurance  •  ExIm  Bank    (U.S.  Government  program)  •  The  Private  Market  
  • 30. How  To  Choose  –  Cost/Rate  •  How  are  premiums  calculated  and  paid?  –  Minimum  Premiums  –  Deducble  –  Available  cover  •  Key  buyers  •  Single  buyer  •  Polical  risks  •  Country  availability  •  Content  restricons  –  Differences  in  Underwring  Support  
  • 31. Using  Credit  Insurance  •  Terms  and  Condions:    –  Know  your  policy.  •  Stop  Shipment    •  Reporng  •  Claim  filing  requirements  •  Exclusions  •  Policy  Administraon  –  Updates  •  New  Customers  and  Increased  Limits  •  Longer  Terms  •  New  products  •  New  Countries      
  • 32. Claims  •  Claim  Triggers  – Waing  periods  – Insolvency  •  Claim  filing  deadline  •  Documentary  Requirements  – The  big  three  WRITTEN  Purchase  Orders  Invoice  Bill  of  Lading  Things  Need  to  Match.  
  • 33. More  on  Credit  Limits  •  Named  buyer  limits-­‐the  simple  soluon  •  Discreonary  Credit  Limits  – Rules  based    – Compliance  with  condions  is  key  to  successful  claims  – Some  examples  •  Ledger  history  •  Third  party  informaon  •  Internal  procedures  become  part  of  the  policy    
  • 34. Assignment  of  Proceeds  •  Entles  lender  to  claim  payments  •  Does  not  enable  lender  to  file  a  claim  •  May  entle  lender  to  policy  onformaon  •  The  ExIm  enhanced  assignment  
  • 35. Specialty  Brokers    •  Familiar  with  specialized  policy  requirements  •  Infrastructured  to  assist  clients  •  Knowledgable  about  the  market    •  Able  to  provide  opons  for  cover  – Best-­‐fit  – Lowest  cost  
  • 36. www.tarnensurance.com  805-­‐375-­‐2373  CA  LIC  0C75675  
  • 37. E X P O R T T R A D E S E M I N A RCREATING AN INTERNATIONALCREDIT POLICY
  • 38. A/R IS AN IMPORTANT PERCENTAGE OFA TYPICAL COMPANY’S ASSETSWHR GE CAT NWL DBD HON AVERAGEA/R 2,038 287,489 18,673 1,112 488 7,429TOTAL ASSETS 15,396 685,328 88,743 6,222 2,593 41,853% AR / TOTALASSETS 13% 42% 21% 18% 19% 18% 22%FY 2012 – US MillionA/RTotal Assets
  • 39. SALES & COLLECTION• Making sales is important,but collecting on thosesales is critical• Without sales a companycannot continue tooperate, but a sale is nottruly a sale until collected
  • 40. WHAT IS A CREDIT POLICY?A Credit Policy canbe defined as ageneral course ofaction used to guidefrequentlyencounteredsituations designed toachieve strategicobjectivesCredit Management: Principles & Practices, 4th Edition
  • 41. WHY SOME COMPANIES DON’T HAVE ACREDIT POLICY?•  Sales departmentexercise control overthe credit process•  Management teamsnot convinced of thevalue of credit policy(concerned it maystifle sales)•  Senior managementlack knowledge ordirection on how towrite and implement apolicy•  Managementunwillingness to devotethe needed resourcesto write and implementa policy document.
  • 42. PROBLEMS BECAUSE LACK OFCREDIT POLICY•  Subjective and inconsistent decisions•  Poor communication (internal and external)•  No quantification of analysis•  Limited control•  Inadequate visibility and aggregation•  Unaware of how to profitably managereceivables•  Reactive mode environment rather thanProactive mode
  • 43. REASONS TO HAVE A CREDIT POLICY•  Improve decision making•  Clear guidelines for dealing with customers incredit terms•  Provide corporate strategy for creditoperations•  Operational guide for credit staff•  Elimination of unauthorized special credit deals•  Simplifies the work of auditors and compliancewith government issuesSource: FCIB International Credit Policy webinar.
  • 44. DIFFERENCE BETWEEN CREDITPROCEDURES AND FORMAL CREDIT POLICYCredit Policy outlinescompany’s strategicand operationalrequirements fromcredit salesProcedures are theevery day workingpractices of thecredit department:who does what andhowrSource: FCIB International Credit Policy webinar
  • 45. WHERE TO START?
  • 46. WHERE TO START?•  Look beyond individual customers in a waythat reflects an understanding of just howcredit fits into overall corporate goals•  Policies that guide the credit function aredeveloped and monitored within thecontext of a corporate strategic-planningframework.•  Specific credit policies and procedures areformulated to achieve corporate goalsCredit Management: Principles & Practices, 4th Edition
  • 47. SOLID FOUNDATIONS•  Strategic planning is thekey ingredient thatunderlies credit policyand procedures•  Strategic planning entailsthe coordination of long-range plans with aparticular focus uponstrategies, controls anddesired results•  Link credit policy andprocedures closely tocost controlsCredit Management: Principles & Practices, 4th Edition
  • 48. CHARACTERISTICS OF A CREDIT POLICYYour policy should keep you competitive whileavoiding unnecessary lossesHow your industry works and how your company fitsinto your industry will have a large affect on yourcredit policy
  • 49. PRINCIPLES TO FOLLOW WHENESTABLISHING YOUR CREDIT POLICYMarketPositionCustomerTypeMerchandiseTypeMarkupPricingProductAvailabilityLocationFinancialStrengthEconomicTrendsGovernmentRegulations
  • 50. PRIMARY SECTIONS TO INCLUDEMission StatementGoalsDefine Credit Limit AuthorityCredit EvaluationCredit LimitsTermsAccount MonitoringCredit HoldCollectionsCredittoday.net
  • 51. GLOBALIZATION•  Globaliza(on  is  not  just  a  cliché.  It  is  happening  all  around  us  as  businesses  increasingly  look  at  the  world  as  if  it  had  no  na(onal  boundaries.    •  With  globaliza(on,  compe((on  intensifies.      Under  these  circumstances,  the  only  companies  that  will  succeed  are  those  that  are  capable  of  providing  customers  first-­‐class  products  and  services,  along  with  compe((ve  payment  terms  
  • 52. INTERNATIONAL CREDIT POLICY
  • 53. INTERNATIONAL PAYMENT METHODS
  • 54. THE THREE C S OF OF INTERNATIONAL CREDIT• Country(Sovereign)Risk• Currency Risks• Cultural Risks
  • 55. CULTURAL RISK
  • 56. BASIC TECHNIQUES AND RULES•  Evaluate  the  stability  of  the  government  of  the  country  in  which  the  importer  is  located  and  review  events  that  might  affect  sales  to  a  par(cular  foreign  country  and  foreign  customers    •  Some  of  the  most  common  barriers  or  complexi(es  associated  with  expor(ng  include:  differences  in  language;  credit  terms  [terms  of  sale];  shipping  terms;  and  foreign  exchange  problems    •  Understand  the  local  meaning  as  well  as  the  textbook  transla(ons  of  business  terms  and  terminology    
  • 57. BASIC TECHNIQUES (CONTINUED)•  Become  familiar  with  methods  available  to  mi(gate  the  risks  associated  with  export  sales  transac(ons    •  Meet  with  your  companys  top  management  to  consider  profit  margins,  sales  terms,  and  the  amount  of  risk  considered  acceptable  to  the  expor(ng  company    •  Understand  your  own  countrys  export  laws  as  well  as  rules  and  regula(ons  and  laws  in  each  of  the  countries  you  plan  to  export  into    •  Credit  managers  have  to  take  some  risks,  but  they  must  be  calculated  risks    
  • 58. MINIMIZE THE RISK• Request  a  signed  credit  applica(on    • Obtain  and  evaluate  credit  informa(on    • Request  the  most  recent  financial  statements    • Request  trade  references  from  at  least  three  U.S.  trade  references  -­‐  preferably  vendors  selling  in  large  dollar    • Request  bank  references,  checking  accounts,  and  loan  informa(on.    
  • 59. MINIMIZE THE RISK (CONTINUED)• Get  ra(ngs  on  all  the  references  and  keep  them  updated    • Run  a  credit  report    • Establish  the  terms  of  sale    • Establish  the  credit  limit    • Specify  in  what  currency  payment  will  be  made    • If  payment  is  not  in  U.S.  dollars,  include  wriSen  agreements  on  the  exchange  rate    
  • 60. MINIMIZE THE RISK (CONTINUED)• Get  the  customers  agreement  to  credit  terms  in  wri(ng    • Make  sure  the  credit  terms  are  also  printed  on  the  invoice    • Stay  current  in  world  affairs    • Monitor  media  coverage  of  the  customers  country    • Study  the  demand  for  the  product  shipped    • Be  aware  of  how  (tle  passes    
  • 61. SOURCES OF INFORMATION• Interna(onal  Trade  Administra(on  (ITA)    • FCIB  /  NACM    • EXIM  Bank    • World  Bank    • Graydon,  D&B,  Coface,  CrediSoday,  Atradius    • The  Economist,  Bloomberg-­‐Businesweek,  Barron’s,  Financial  Times,  WSJ    
  • 62. THANK YOUDiego Jiménez, CICP  ICCEdjimenez@accuride.com
  • 63. Presented ByTim Bastian, International Certified CreditExecutive
  • 64. }  Non-Financial Companies have three FX risksto manage.1.  Transactional Risk- Contract Import andexport activity as well as borrowing orlending in foreign currencies.2.  Operational Risk – Future operational cashflows from non-contract business.3.  Translation Risk – From the financialstatement rollups in multi-nationalcompanies to a single currency.
  • 65. Political Risk Country Economic OutlookInflation DeflationTimingMarginsVolume
  • 66. }  As a U.S. retailer, your supplier for swim suitsis in Brazil whom is seeing 13% inflation,while the dollar remains stable. The supplieris under pressure to raise prices. Options:A.  If you have a contract in dollars, thesupplier would need to look at offsets to hisincreasing cost. (hedges/swaps)B.  If no contract, your price may go up or youmay need a different supplier to maintainyour cost.
  • 67. }  You are selling machined goods to Mexicowith the sale in Dollars and while you haveyour invoice out, the Dollar strengthensagainst the Peso.1.  It will cost your customer more money topay you.2.  The customer may try to hold funds uphoping for a correction to the exchange ratebetween the Peso and the Dollar.
  • 68. }  Solutions:1.  You can discuss simple solutions with yourcustomer. A pre-payment will lock theirPeso cost to Dollar at quoted levels throughdelivery.2.  Credit insurance options to protect fromdefaults resulting from currency shifts.
  • 69. 1.  Always Hedge to the risk not for profit.2.  When getting FX quotes from your bankermake sure you ask for the buy/sell ratestogether to get the best price on order.Example: Buy/Sell Dollar to Yen, 1 Million.This way you learn the spread betweencurrencies and do not over pay in eitherdirection.
  • 70. }  FCIB Membership – Courses and a web basedKnowledge Center with solutions madeavailable to you.}  Your Accountant that has internationalexperience.}  Your Attorney with international tradeexperience.}  Your Banker who has an InternationalCurrency trading desk and internationalbanking experience.
  • 71. }  U.S. Department of Commerce – CommercialImport/Export Department.}  Your Insurance Broker (some major insurerscan provide solutions for international FXrisks.)
  • 72. }  Foreign FX strategies to determine risk andwhat the best method to offset those risks isa complicated subject that can not be learnedfrom a short seminar, use your team ofinternational professionals and otherresources to best determine what will workfor your situation.
  • 73. Thank you to all of the sponsors of the event.
  • 74. SAVE THE DATEFor FCIB’s 24th Annual GlobalConference!September 15-17, 2013 at theHyatt Regency Philadelphia, Pennsylvania  
  • 75. Financial Support forExportsExport-Import Bank of the United States
  • 76. Who We Are▪ Mission – To create and sustain jobs by increasing U.S.export sales▪ Official Export Credit Agency (ECA) of the U.S.Government since 1934▪ 85% of all transactions are to small businesses▪ Target 20% of all authorizations to small businesses▪ Self-sustaining
  • 77. Ex-Im Supports a Variety of Industries▪ Manufacturing▪ Construction▪ Medical▪ Mining▪ Power-generation▪ Aircraft and Avionics▪ Services▪ Renewable Energy▪ Agribusiness▪ Wholesale/Retail▪ Oil and Gas
  • 78. Open in Over 155 Countries 1. Brazil 2. Colombia 3. India 4. Indonesia 5. Mexico 6. Nigeria 7. South Africa 8.Turkey 9.Vietnam
  • 79. Working Capital Guaranteeon Exporter LoansMedium and Long TermInsurance & Guarantees onBuyer LoansPre-Export Post-ExportExporter Finance ChainExport Credit Insurance onBuyer Credit
  • 80. Working Capital Guarantee—Basic Parameters90% guarantee on principal and interestfor export-related inventory and A/R– Guarantee also covers certainliquidation costsGenerally one year or lessMust be fully collateralizedCovers exporter performance riskNote: Provides no protection to exporteragainst foreign buyer non-payment
  • 81. Benefits to Exporter/Borrower• Finance foreign a/r to generate additional working capital• Finance costs of new, foreign POs▪  Generate additional Gross Profit Margin by increasingforeign sales▪  Incentivize your Banker to issue Standby L/Cs coveringyour Advance Payment Guarantee, Bid/Tender Bond, orPerformance Bond for only 25% (10% by specialcircumstance) cash collateral.
  • 82. Working Capital Guarantee for ExporterTO QUALIFY:•  Three years in business•  One year exporting•  Positive net worth, profitable prior year•  Minimum Financial Requirements:–  Current Ratio–  Net Sales / Total Assets–  Debt to Worth–  (Net Profit + Depreciation, Depletion, & AmortizationExpense) / Current Portion of Long Term Debt–  EBIT / Interest–  Cost of Sales / Inventory; and–  Sales / Accounts Receivable
  • 83. Global Credit Express – Term SheetBorrower: A U.S. company exporting U.S. goods/servicesPurpose: for finance of the business of exportingrather than specific export transactionsAmount: Max. $500,000Type: Line of creditPeriod: six months or one yearInterest Rate: Ex-Im CIRR* + 2.6% p.a. fixedFees: $500 Application; $2500 Referral Fee; 2.5%flat Exposure Fee on amount of Line of Credit; LegalFees est. $150 0 -$3000*CIRR: currently 1.39% fixed; seehttp://www.exim.gov/tools/commercialinterestreferencerates/
  • 84. Global Credit Express – Term Sheet (2)Collateral: (i) a first or second perfected securityinterests in the general assets of the Borrower.(ii) owner(s) with 20% or more ownership providepersonal guarantee(s)Documentation: (i) Application Package, (ii) Ex-ImCommitment Letter w/Term Sheet, (iii) Loan, Creditand Guarantee Agreement; (iv.) Promissory Note.
  • 85. Global Credit Express – Eligible Borrowers•  is a small business by SBA definition•  min. three years of revenue producing operations•  one year of exporting experience•  no tax liens or judgments•  exports goods made in USA or services performedby U.S. citizens•  possesss a business FICO score of 180 or higher
  • 86. Export Credit InsuranceExporter Benefits:• RISK PROTECTION: Protects the exporteragainst non-payment by their foreign buyers• MARKETING TOOL: Enables the exporter toextend open account credit terms to new andexisting foreign buyers• FINANCING AID: Allows lenders to addinsured, foreign receivables into the borrowingbase
  • 87. Single-Buyer, Single CountrySmall Business Multi-buyerSmall Business Multi-buyer – Express InsuranceStandard Multi-buyer___________A small business is defined by the Small BusinessAdministration at this site:http://www.sba.gov/size-standards-tool?ms=nid4060In addition, Ex-Im provides its Small Business policies only tothose Small Businesses who had average $7.5 mm or less exportsales on credit terms over the past three years.Short-Term Policy Types
  • 88. Exporter Qualifications to apply for Small Business orStandard Multi-buyer Policy:1.  In same line of business for at least three years.2. Have at least one year of exporting experience.3. Had an operating profit in their most recent fiscalyear.4. Dun & Bradstreet Paydex of 50 or higher and noderogatory information.5. Signed financial statements for the last fiscal yearthat show positive net worth. Net Worth at the mostrecent fiscal year-end is at least 10% of requestedpolicy limit.6. No material adverse issues.
  • 89. Export Credit InsuranceCost for a Policy Quote: $ - 0-Cost for a one-year Policy: $ -0-Cost to insure a Buyer: about $.65 per US$100.00Information Needed on the Buyer:$100,000 – a credit report$250,000 – credit report and two tradereferences$300,000 – financial statements on BuyerCoverage Amount: 90%/95%Claim Window: 90 – 240 days from invoice due date
  • 90. Medium & Long Term Buyer Loan Insurance/GuaranteesFor international buyers purchasing U.S. capitalequipment and services:▪ 85% financed, 15% cash down payment▪ Medium-term– Repayment typically up to 5 years andamounts up to $10 million▪ Long-term– Greater than 5 years and over $10 million
  • 91. M/T Insured Foreign Buyer Loan – the structure•  U.S. Exporter, a manufacturer of capital equipmentwhose•  Foreign Buyer, who wants to finance the purchasewith “Customer Finance”.•  Commercial bank, or “lender”, providing a loan tothe Foreign Buyer, and cash to the U.S. Exporter,which loan’s principal and interest payments are:•  Insured (or guaranteed) by Ex-Im Bank of the U.S.
  • 92. M/T Insured Foreign Buyer Loan – EligibleBorrowers/Buyers•  Minimum operating history of 3 years•  Current financial statements with Notes:•  Loans under $1 million: signed, unaudited•  Loans over $1 million: CPA audited,international accounting standards•  Borrowers w/annual sales <US$50 millionequivalent may require owner(s) Guarantees•  Financial condition, evidenced by financialstatements, yield financial ratios per “MediumTerm Credit Standards”, see:http://www.exim.gov/tools/upload/ebd-m-39-1.pdf
  • 93. M/T Insured Foreign Buyer Loan – EligibleBorrowers/Buyers (2) i.e., “loan package”•  Credit agency report – favorable•  Commercial banking reference•  Positive operating profit and net income, past twoyears•  Positive cash flow, past one year•  Total Liabilities no more than 1.75x tangible networth•  Amount of credit is no more than 40% of tangiblenet worth•  Interim statements disclose no deterioration
  • 94. 20Call Ex-Im Bank Regional Export Finance Centernearest your location:Irvine, CA: 949-660-1341David Josephson, Western Regional Director(949) 660-0726 DirectDavid.josephson@exim.govwww.exim.govMore Information
  • 95. U.S. Small BusinessAdministrationInternational Trade Finance ProgramsTrade Connect Export WorkshopLos Angeles Area Chamber f CommerceMay 8, 2013
  • 96. Martin SelanderInternational Trade SpecialistU. S. Small Business AdministrationU. S. Export Assistance Center2303 Martin Court #315Irvine CA 92612(949) 660-8935Serving exporters of Southern California,Nevada, and Hawaii
  • 97. SBA Los Angeles District Office330 North Brand Blvd #1200Glendale CA 91203(818) 552-3210SBA Santa Ana District Office200 West Santa Ana Blvd #700Santa Ana CA 92701(714) 550-7420
  • 98. Additional information availableon linewww.sba.gov/oitIncluding copies of all requiredapplication forms, program infoand national staff directory
  • 99.   Export Working Capital Program  SBA Export Express International Trade LoanSBA Export FinanceAssistance Programs:
  • 100.   Pre-Shipment GuaranteeLoan proceeds to acquire/producegoods or services for export  Post-Shipment GuaranteeDiscounting accounts receivableExport Working Capital Program
  • 101. Short Term +Transaction BasedLoan repayment from assignment ofpayment proceeds from foreign buyer:-Letter of Credit-Open AccountUnlike more traditional financing, loanrepayment not based upon borrowercash flow or profitabilityExport Working Capital Program
  • 102.   Single Transactionor Revolving Credit Line.Disbursements must be linked to specificexport transaction, contract, PO, LC,invoice, etc.  Maximum gross loan limit $5,000,000.(no minimum). Maximum 90% SBAguaranty to the lenderExport Working Capital ProgramFeatures
  • 103. Negotiable between applicant and lenderSBA fee is one quarter of 1.00% of the SBA guaranteedportion for 12 months or lessExample$100,000 loanx 90% SBA guaranty=$90,000 SBA guaranteed portionx0.25%=$225.00 fee due from borrowerExport Working Capital ProgramInterest Rates & Fees
  • 104.   A) UCC lien on raw materials-inventorypurchased with SBA funds B) Assignment of contract proceeds C) Personal guaranty D) Additional collateral may berequired on a case-by-case basis.Export Working Capital ProgramCollateral
  • 105.   Exporter must demonstrate ability to perform / i.e. inbusiness 12 months (Note other “non-export” SBA loansare available from SBA District Office) Minimal collateral Service & Trading companies are eligible Country limitation schedule Credit Insurance Applications processed at SBA USEACExport Working Capital ProgramEligibility & Features
  • 106.   Provides financing to smallbusinesses whose borrowingneeds are too small to beprofitably met by traditional SBAprograms  “Small” = maximum loan$500,000 (no minimum)  Flexible use of proceedsSBA Export Express
  • 107.   No SBA application forms  No SBA underwriting or creditreview (eligibility review only)  “Application” faxed or emailed bybank to SBA national processingcenter in Sacramento  SBA turnaround 24-48 hoursSBA Export ExpressIncentives/Advantages
  • 108.   Lender to obtain a brief narrative fromapplicant to clarify how loan proceeds willbe utilized.  Applicant in business for at least 12months.  Proceeds are to be used to develop orexpand applicant’s export markets.SBA Export ExpressEligibility
  • 109. n  Finance Export Development activities supported by U.S.Department of Commerce Commercial Service: Gold Key, ICP, etcn  Other marketing costs such as participation in a foreign tradeshow or translation of product literature for use in foreign markets.n  Real Estate acquisition or construction to support production ofgoods for export.n  Acquisition of machinery or equipment (i.e. computers, forklifts,etc) to be used in the production of goods for export.n  Permanent long term working capital infusionSBA Export ExpressUse of Proceeds
  • 110.  Maximum loan amount $5,000,000 Applicant must establish that the loan proceeds will expand an existingexport market or develop new ones Provides long term financing for small business engaged or preparing toengage in exporting Examples: purchase fixed assets, such as land and building, expand orrenovate existing facilities, purchase machinery and equipment,permanent working capital, debt refinance in limited cases Application package must be submitted from lender to SBA (does notallow for streamlined faxing of application as in the Express program)The International Trade Loan
  • 111. Martin SelanderInternational Trade SpecialistU. S. Small Business AdministrationU. S. Export Assistance Center2303 Martin Court #315Irvine CA 92612(949) 660-8935Serving exporters of Southern California,Nevada, and Hawaii
  • 112. FOREIGN AGRICULTURAL SERVICEUnited States Department of AgricultureEXPORT CREDITGUARANTEEPROGRAMGSM-102FACILITATINGTRADEFINANCE
  • 113. WHAT ISGSM-102?GSM-102•  It’s not a loan…•  It’s not a grant…•  It’s a guaranteeBacked by the full faith and creditof the United States Government
  • 114. PURPOSE OF THEPROGRAMPromotes the export of U.S. agricultural products by facilitating thefinancing component via a credit guarantee.USDA guarantees the letter of credit to emerging markets wheresales may not occur without the financing and guarantee.GSM-102
  • 115. PROGRAMDESCRIPTIONObjective• Protects U.S. exporters or U.S. banks against the non-payment of theimporter’s foreign bank under a Letter of Credit (L/C)Terms• Guarantees up to 98% of the loan principal• Covers a portion of the interest• Fees are based on country risk and length of financing• Fees dependent on frequency of principal repaymentsCoverage• Coverage up to 2 years• Over 190 agricultural products• Freight costs are usually covered• Over 140 banks covered in almost 80 countriesGSM-102
  • 116. PROGRAMPARTICIPATION• Approved Countries/Regions• Approved Foreign Banks• Qualified U.S. Exporters• Approved U.S. Banks• Importers do not need to be approvedGSM-102
  • 117. • Not just for bulk commodities• High-value processed products are also covered• Not just for large corporations• Approximately 47% of participants are SME’s• Not just for large dollar transactions• Transaction sizes have no minimum. Many are under$1 million USDGSM-102 is…MISCONCEPTIONSGSM-102
  • 118. Consumer-ready - Intermediate - BulkELIGIBLECOMMODITESü 100% produced in USAü High-Value products (90% U.S. Content)GSM-102
  • 119. HOW MUCH ISTHIS GOING TOCOST?Guarantee fee(fully transparent)Cost of L/CFinancing costsGSM-102
  • 120. COMPARISONGSM-102WITHOUTGSM-102WITHGSM-102U.S. exporter reluctant toship without being paidin advanceBank in region may beunwilling to providecredit to importerAny financing to importermay have very short repaymentterms & higher interest ratesU.S. exporter more likely to shipsince USDA carries 98% of the riskand payment is received uponpresentation of documentsPresence of loan term extended bythe U.S. bank to the foreign bankmay encourage extension of creditby the foreign bank to the importerImporter now in better position tonegotiate favorable loan terms withGSM-approved bank in the region
  • 121. BENEFITS TO ANEXPORTER§ Open new markets and expand sales where risk may be greater§ Minimal cost – fees average about 1 percent§ Reduce importer and foreign bank risk§ Get paid quickly by assigning guarantee to U.S. bank anddelivering shipping documents that conform with L/C§ Ability to lower all-in-costs to the buyerGSM-102
  • 122. Foreign BankLess risk – USDA assumes almost all risk inthe event of nonpaymentAbility to leverage country & foreign bank limitsReduce capital requirements due to USDAguaranteeAbility to lend at reduced rates because ofUSDA guaranteeAbility to lend up to 2 yearsBENEFITS TO U.S.BANKSEstablish or improve correspondent bankingrelationshipsService U.S. exporter clients & expandrelationshipsGSM-102
  • 123. 12HOW TO GETSTARTED?ExporterGet a DUNS numberSubmit qualificationapplicationNegotiate sales contract withbuyerSubmit request for guarantee/pay guarantee feeContact U.S. bank(if assigning guarantee)GSM-102
  • 124. 13HOW TO GETSTARTED?Provide most recent auditedfinancial statementsDocumentation from federal orstate agency regulatorIdentify shareholderownership & managementContact information ofprincipal and U.S. regulatorU.S. BankGSM-102
  • 125. Africa & Middle EastCentral AmericaCaribbeanCentral AsiaMexicoChinaRussiaSouth AmericaSouth KoreaSoutheast AsiaVietnamTurkeyMARKETSGSM-102
  • 126. 2007 2008 2009 2010 2011 2012Claims Registrations.26% 4.23%5.23%.49%$5.32 billion$1.44 billion$3.09 billion$4.12 billion$4.13 billion$3.11 billionREGISTRATIONS(USD BILLIONS)GSM-102
  • 127. GLOBAL USAGEFY 2011 – 2012 (in USD millions)+Eurasia Region discontinued in 201202004006008001000120020112012$USDMillionsGSM-102
  • 128. Soybeans26%Yellow Corn20%Wheat18%Soybean Meal11%Cotton6%Rice3%BreedingCattle3%Beef2%Other11%TOPCOMMODITIESFY 2012GSM-102
  • 129. FY 2013PROGRAMMINGCountry/Region ($5.5 Billion per Farm Bill)Africa/Middle East Region $ 400 MillionCaribbean Region $ 300 MillionCentral America Region $ 550 MillionCentral Asia Region $ 50 MillionChina Region $ 200 MillionKorea, South $1,000 MillionMexico $ 400 MillionRussia $ 250 MillionSouth America Region $ 600 MillionSoutheast Asia Region $ 450 MillionTurkey $ 700 MillionVietnam $ 100 MillionReserve $ 500 MillionTOTAL: $5.5 BillionGSM-102
  • 130. FOREIGN AGRICULTURAL SERVICEUnited States Department of AgricultureADDITIONALINFORMATIONTeri Ryan202.720.0663teri.ryan@fas.usda.govwww.fas.usda.gov/excredits/ecgp.aspSee how your business can benefit from GSM-102Contact Us