Copyright © 1997 Craig Snyder. All rights reserved.
The international sales department has done its job. Orders are flowing in from overseas, but pitfalls and problems still persist—the major ones involving financing. How is the company going to finance the manufacture of those new goods going overseas?
First step is to learn the methods and instruments of trade finance. One of the most common methods of paying for overseas transactions is the Letter of Credit (L/C). A useful guide to understanding letters of credit is available from Mantissa. The SBA also offers a short article on Financing Export Sales. Additional sources of information on trade finance and international transactions in general are available on TradePort. Another useful tool is the International Financial Encyclopaedia.
Next step is to contact your bank or lender. The Worldwide Banking Guide, from the international transportation company of Serra International, maintains a list of banks on the Internet. Another resource that lists banks around the world is the Mybank—International Directory. While not visually attractive, it does offer a decent listing of banks that are online from around the world. Yet another listing of online banks is provided by IfBG Gottingen, and Mark Bernkopf has an excellent banking site, including an extensive listing of Ministries of Finance and Economy for countries across the globe.
The Bankers’ Association for Foreign Trade (BAFT) has a program called Access Top Export Capital (AXCAP) which is a referral service for exporters and importers seeking trade financing. Many exporters use more than one bank when financing export transactions—those located out of state may have better programs or more flexible lending practices. The site offers an online form for requesting assistance, and promises a response within 48 hours.
Sometimes banks are not cooperative, especially when they know the goods are going overseas, making them much more difficult to repossess in case of loan defaults. If you are lucky enough to live in a state or country that offers export financing assistance, try them. The U.S. Export-Import Bank has a number of services and programs for trade finance; one of the more useful sections of the site is the Country Limitation Schedule which details credit risk around the globe. The Small Business Administration has the International Trade Loan Program and Export Working Capital Program (EWCP) Loans. The Overseas Private Investment Corporation (OPIC) offers project financing through direct loan guarantees that provide medium- to long-term funding for ventures that involve significant equity and/or management participation by U.S. companies.
Other countries also provide financing for export and import transactions for their companies. For example, the Export-Import Bank of Japan provides both import- and export-oriented loan programs. The Canadian Export Development Corporation (EDC) aids Canadian exporters. The EDC site also offers a credit risk assessment of 65 countries (this is similar to the U.S. EXIM Bank’s Country Limitation Schedule).
Many states in the U.S. have private trade financing offices; some work in conjunction with the U.S. EXIM Bank, and others have their own state funds to work with. The California Export Finance Office (CEFO) provides loan guarantees for export working capital loans. The Connecticut Development Authority offers export financing assistance for Connecticut-based exporters. Companies based in Maryland can take advantage of that state’s trade financing programs. The same goes for Illinois-based exporters through Illinois’ Department of Commerce & Community Affairs (DCCA) Office. Wisconsin exporters have the Wisconsin Department of Commerce—Export Financing Programs, and Ohio has the Ohio Export Finance Initiative.
The international development banks play a major role in the development of infrastructure around the globe. The World Bank, Asian Development Bank, North American Development Bank, Inter-American Development Bank, and the International Monetary Fund are all involved with the financing and funding of development projects. Some of these multilateral organizations are also moving in the direction of private lending.
If an overseas distributor requests terms, the lender would be prudent to have some type of credit information on that buyer. In fact, many of the programs offered by the various governments require a third-party credit reference. An excellent listing of Credit Reporting Agencies around the world, as well as other pertinent international trade finance information, is located at the Credit Management Information & Support site. Owens Online offers online access to more than 8.5 million credit reports for businesses around the globe.
Exporters typically require payment in their own currency. This transfers the currency exchange risk to the buyer. However, there may be times when it is in the best interest of all parties involved to accept foreign currency. Sonnet Financial Report offers advice on controlling the costs of dealing with foreign currency. To determine the current exchange rate, a must-visit is the Universal Currency Converter.
Beyond the Web sites listed above, there are two mailing lists that should be helpful to the international trader. The first is the Import/Export Financing Mail List. It can be subscribed to by sending email to lists@cfonline.com and typing "JOIN IMEX" in the message area. For those interested in alternative means of trade finance, a factoring email list is offered by Commercial Finance Online.
A large number of private financing companies and consultants are also available to help exporters and importers find creative methods of financing their transactions. These companies are usually lenders of last resort and are generally more expensive than the traditional financial companies, like banks. However, it may come down to a choice between them or that million-dollar transaction going bust. A few of these companies are online. Try "trade finance" or "export financing" in Yahoo! and the other search engines to find these consultants and finance companies.
Trade finance can be a difficult, frustrating, time-consuming and expensive undertaking, especially for the small and medium-sized exporters and importers. More seemingly solid deals have gone awry because of the lack of financing over anything else. Use the sites listed here to educate yourself.