Cross border financing

Description:

Why foreign companies need export finance International orders for capital equipment are on the rise and so is demand for export finance. Planning ahead for economic recovery in their export markets, overseas manufacturers are buying equipment to ramp up their production capacity. At the same time, companies in countries with growing domestic economies are acquiring equipment in order to keep pace with local demand for their products and services. It has never been easy for companies in emerging economies to access equipment financing within their own countries, and under present economic circumstances equipment loans may not be available from in-country banks or other lenders at all, even for the largest and strongest of borrowers. Meridian Finance Group has over fifteen years of experience in middle-market export finance, successfully arranging cross-border financing for exporters selling capital equipment to their customers located in emerging foreign markets. What types of transactions can be financed? International sales of all kinds of capital equipment are eligible for export finance, as long as the buyer is a well-established creditworthy company located in one of the many emerging foreign markets where Meridian does business. The equipment can be manufactured in the USA or in another country. Likewise, the equipment may be shipped from the USA or elsewhere, although some export finance transactions may need to be invoiced by a vendor located in the USA. Most of the equipment sales for which Meridian arranges medium-term (multi-year) export finance are between $500,000 and $10,000,000 in size. We have the capacity to support larger export finance transactions, but most of the export finance demand we encounter is for capital equipment in this six- to seven-figure range. Exporters of smaller-ticket equipment may be able to use export credit insurance to extend and finance shorter payment terms to their international customers, up to twelve months or longer in some cases with no minimum transaction size. How cross-border equipment financing is structured Cross-border equipment financing usually takes the form of a loan although in some cases leasing may be feasible. Payment terms for export finance typically range from two to five years in semi-annual or quarterly installments, with interest rates and loan conditions more favorable than those available in the foreign buyer’s own country. Export finance transactions are structured either as supplier credits or buyer credits. Under a supplier credit, the foreign buyer pays the exporter for the equipment with a promissory note which the exporter finances, discounts, or sells to a bank or other lender immediately following shipment of the equipment. This kind of export finance transaction is made possible because the supplier obtains export credit insurance which protects the promissory note against virtually all nonpayment risks. Compared to buyer credits (see below), supplier credits leverage the relationship between the exporter and the foreign buyer to engender faster turnaround times, more flexible insurance underwriting, and lower export finance costs. In some cases the exporter may need to retain a small portion of the default risk on the foreign buyer. Under a buyer credit, the foreign buyer’s promissory note is addressed to a bank or other lender who pays the exporter’s invoice immediately following shipment of the equipment. This kind of export finance transaction is made possible because the lender obtains its own export credit insurance policy on the promissory note. Compared to supplier credits (see above), buyer credits may take longer to get underwritten and funded. The lender needs to visit the foreign buyer to perform its own due diligence. The insurance underwriting process is also more involved because the bank/lender is typically not a direct participant in the underlying trade transaction. Export finance using a buyer credit structure is most feasible if the foreign buyer is a very large company with audited financial statements or if the transaction qualifies for support from the Export-Import Bank of the U.S. While Ex-Im Bank underwriting typically requires longer turnaround times than private-sector transactions, Ex-Im Bank may be prepared to work with smaller buyers, suppliers, and export finance deals. What kinds of information are required? Meridian evaluates the creditworthiness of foreign buyers for export finance based on information including, but not limited to, three years of annual reports or audited financial statements, interim financials, credit reports, bank and trade references, searches of public records, buyer visits, market research, and other due diligence. The first step in seeking export finance is to provide Meridian with the foreign buyer’s audited financial statements and the exporter’s equipment quotation or sales contract. In most cases this information enables us to gauge the feasibility of arranging trade finance for the transaction, at which point we issue an initial financing proposal or terms sheet to the exporter (supplier credit) or the buyer (buyer credit). Please note that when arranging export finance we consider the cogency of the underlying trade transaction to be as important as the foreign buyer’s financial information. While not an absolute requirement, we do have a preference for trade finance scenarios in which the exporter and the foreign buyer have a history of doing business together, whether using trade finance or otherwise. Why you should work with Meridian Over the past fifteen years, Meridian Finance Group has helped hundreds of exporters increase their international sales using cross-border equipment financing, export credit insurance, and other trade finance tools. While we’re proficient at using Ex-Im Bank programs and other conventional trade finance techniques, many of our transactions are structured using proprietary methods we’ve formulated ourselves by working with a wide range of countries and industries. We understand your business. Our staff is multicultural and multilingual, with experience not only in trade finance and credit insurance, but also exporting, manufacturing, operations, logistics, and international distribution.