Breakthrough in Export Financing

Aug 27, 2008

Small businesses seeking financing for their export transactions gained a powerful new tool last week. Three commercial lenders were given the authority to pre-approve multi-year export financing guaranteed by the federal government. This change will speed up many export transactions and make U.S. exporters more competitive with foreign sellers.

The Export-Import (Ex-Im) Bank of the United States, a federal agency that provides the loan guarantees, made the announcement of the change. The Ex-Im Bank decision caps more than five years of work by the Small Business Exporters Association (SBEA), the international trade council of NSBA.

SBEA has advocated for streamlining the Bank’s “medium term guarantee” program--180 days to five years--which is widely used by exporters of products with relatively high unit costs, such as capital equipment. Buyers of these products, who are often small businesses, need these longer terms to afford the purchases. But until now, each such loan required pre-approval by Ex-Im Bank in order to obtain the Bank’s crucial federal guarantee. Without that guarantee, commercial banks would not accept the foreign risk of these loans. Yet those Ex-Im approvals generally took months, and sometimes over a year causing exporters to lose business due to the delays.

Now, after careful evaluation and training, Ex-Im has designated the first three lenders who can pre-approve most of these loans. They are: Citibank, N.A. of New York, North Star Trade Finance of Vancouver, Canada, and UPS Capital of Windsor, CT. Citibank and UPS Capital are high-volume users of Ex-Im Bank services. North Star is owned by four large Canadian banks and has had prior approval rights for similar transactions in Canada for over 15 years. The company has created a subsidiary in the United States for this program. Both North Star and UPS Capital focus most of their efforts on small and medium-sized exporters. North Star has pledged to eventually provide one-week approval times for these transactions, which is the company’s standard approval cycle in Canada.

About six additional lenders are being evaluated by Ex-Im Bank for possible inclusion in the program at a later date. Ex-Im has long permitted commercial banks to pre-approve its other products, such as export working capital and short-term financing.

Streamlining medium-term financing has been a top SBEA priority since 2003. SBEA decided to weigh in after an unsuccessful ten-year-long effort by larger exporters to get such a program approved. Congress provided Ex-Im with the authority and mandate for the program in 2006.

For further details, see the Ex-Im Bank Click Here.