The Export-Import Bank of the United States (EXIM) has announced the temporary expansion or establishment of four financing programs to help exporters cope with the COVID-19 crisis. The crisis has caused a multitude of problems for U.S. exporters, including supply chain disruptions, liquidity issues and reductions in demand for products. EXIM is seeking to address these issues by providing exporters with additional supply-chain security and access to liquidity. To do this, it is temporarily expanding three programs—the Working Capital Guarantee Program (WCGP), the Supply Chain Financing Guarantee and Pre-Export Payments—and creating one new temporary program—the Bridge Financing Program. These temporary changes will remain in place until April 30, 2021. As global supply chains continue to be reshaped during this crisis, companies should consider EXIM and other government-backed financing, such as from the Small Business Administration, in meeting their international trade needs.
Working Capital Guarantee Program (WCGP)
The WCGP facilitates loans from commercial lenders to U.S. exporters, with a focus on helping small- and medium-sized businesses. Exporters can use WCGP loans to cover various export-related costs, including labor, materials and overhead. EXIM has modified this program to improve its affordability, increase access to capital for U.S. exporters, and reduce the credit risk for commercial lenders. More specifically, EXIM has expanded exporters’ borrowing ability by expanding the class of assets they may borrow against. EXIM is also revising the fee schedule for the WCGP and is considering increasing the loan-guarantee coverage for lenders from 90% to 100%. These changes should make WCGP loans more attractive for both lenders and borrowers.
Supply Chain Financing Guarantee Program (SCFG)
The SCFG is designed to increase liquidity in the supply chain. The program allows U.S. exporters and their suppliers to sell their accounts receivable to commercial lenders at a discounted rate. In return, the exporters receive early payment of their invoices. EXIM guarantees 90% of an eligible account receivable while the commercial lender bears 10% of the risk. EXIM’s temporary expansion of the SCFG relaxes certain restrictions on the program. In particular, it eliminates the target that 50% of suppliers be small businesses. The expansion also allows exporters to make sales to their foreign affiliates instead of requiring exporters to make sales directly to unaffiliated foreign buyers. Previously, this type of transaction was excluded from EXIM support. In addition, EXIM is considering increasing its guarantee from 90% to 100%. These temporary changes to the SCFG should expand liquidity for U.S. exporters and their suppliers who have experienced a liquidity crunch as a result of the pandemic.
Pre-Export Payment Program (PEPP)
The PEPP is generally used for large, long-lead manufacturing products that require extensive customization. The program allows exporters to recoup some of their production costs for these products before final delivery. PEPP was traditionally limited to transactions where EXIM provided the long-term financing to the foreign customer. The expanded program eliminates this limitation, making pre-delivery or pre-export payments available to both foreign customers and U.S. exporters for transactions where EXIM is not providing the long-term financing. Transactions can be customized to match the requirements of each specific export contract. For each transaction, EXIM will assume the credit risk of the foreign customer. These changes should tend to support U.S. manufacturers by mitigating the risks and liquidity concerns associated with long-lead manufacturing products.
Bridge Financing Program (BFP)
The BFP is a new program designed to address the lack of liquidity in the private sector that the COVID-19 crisis has caused. The program may benefit all sectors, including small businesses, by providing temporary, short-term financing to foreign customers of U.S. exporters to allow them to acquire U.S. goods and services. Each BFP transaction has an initial term with several “options to extend” EXIM financing or, in the alternative, opt out and obtain private financing.
These four programs may help exporters address liquidity and supply-chain issues caused by the pandemic. Any exporter seeking liquidity for its operations may want to consider applying for the WCGP or the SCFG.For complex, long-lead manufacturing projects, exporters may want to utilize the PEPP. If an exporter’s foreign customers are having trouble obtaining financing, the BFP may be able to assist. Exporters should consider these and other government programs as they look to minimize business disruptions from the COVID-19 pandemic.
However, companies should consider whether they are meeting the applicable regulations and qualifications, and maintaining proper legal documentation and contract terms as to the actual transaction and not just in regard to the financing of the transaction. Companies may also want to consider including any requirements in an updated policy and procedure related to foreign transactions.
