Free Online Course in International BusinessEx-Im Bank ProgramsMedium and longterm financing options are the most limited of all of the financing options available. There are many public sector providers, but most rely on the guarantees of the ExIm Bank in the United States. The main difference is pricing and the risk level these public sector providers are willing to take as opposed to regular or nonexport related bank financing. The definition of mediumterm financing can vary by global market. Mediumterm and longterm financing are used to finance capital goods and services that have a useful life beyond one year. This type of financing is often used for large transactions involving goods and services from heavy machinery to nuclear power plants. The philosophy behind this type of financing is to benefit the exporter by providing financing options for a buyer. The buyer taking advantage of this option would do so because the transaction cannot be financed in the local market. Having this option available allows the buyer to get an installment loan or lease while the seller receives immediate cash to complete the sale. The risk is with the buyer if his/her company is unable to perform against the loan or lease. The ExIm Bank guarantees give comfort to the lender, whether it is a bank or private provider of the financing.Buyer CreditsBuyer credits provide financing to an importer in the form of a loan where the proceeds from the loan go to pay the seller for the goods or services. This type of financing can be done in the form of a direct loan. Direct loans usually support large capital goods purchases including plant and equipment or turnkey projects. Buyer credits are generally on a nonrecourse basis with the exporter depends upon the creditworthiness of the buyer and the support of an ExIm Bank guarantee. Buyer credit programs benefit all the parties involved. The exporter is paid in cash on delivery and acceptance of the product or service. The importer benefits by acquiring funding under favorable conditions that would normally not be available. The financing entity has the firm guarantee from ExIm Bank that there will be full payment to the financer should the buyer default. The ExIm Bank program benefits the lender because the program can be used for a onetime sale or for a series of shipments from one or more exporters to the same buyer with no firstloss deductible. The program provides coverage of 90% for private sector buyers, 100% for sovereign obligors, and 98% on bulk agricultural products. Financing under these policies can generally extend up to five years (up to seven years in exceptional cases) and for any amount. The program requires a 15% cash deposit from a buyer, and the seller must meet the normal content requirements.
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