With the market downturn, there is less willingness from lenders to approve credit causing availability to be reduced with certain collateral no longer eligible within the restructured credit facilities. While this can be a concern for many companies and bankers alike, there are tools to create more credit availability during a squeeze. One option may create more credit availability for your company than another, so it is crucial to consider which strategy increases eligible collateral the most, creating the best fit for you.
EXIM Working Capital Guarantee Program
When should a company opt for the EXIM Working Capital Guarantee Program?
If a company wants to expand collateral availability by leveraging both export related inventory and receivables, then the EXIM Working Capital Guarantee Program is probably the best option. In order to qualify for the EXIM Working Capital Program, goods must be exported from the United States and contain over 50% U.S. content. In addition, companies can issue standby letters of credit with as little as 10% collateral, making it appealing for companies that use standby letters of credit for performance guarantee purposes.
Why?
Under this program, lenders have a 90% guarantee from EXIM Bank (backed by the U.S. government) enabling them to provide advance rates up to 90% against foreign receivables and up to 75% against inventory, including work in process. This creates significantly more availability for companies to use as collateral to borrow against.
Trade Credit Insurance
When should a company opt for trade credit insurance?
If a company is looking to borrow against collateral consisting primarily of receivables, then trade credit insurance, if available, is most likely the best option.
Why?
Advance rates against insured receivables and the advance rates against receivables under the EXIM Working Capital Guarantee Program are similar, but insurance provides enhanced risk mitigation for the borrower that is not provided by the EXIM Working Capital Guarantee Program.
The bottom line is structure matters now. It is difficult to move banking relationships due to the uncertainty of the contracting market. Certain collateral that was previously considered eligible collateral may be deemed ineligible now. Looking at the EXIM Working Capital Guarantee Program and Trade Credit Insurance are great strategies to mitigate the current squeeze on lending and improve access to capital.
Are you ready to grow and protect your business? Impello Global is a trade finance advisory boutique and trade credit and political risk insurance brokerage, with offices in Seattle, San Francisco, Boise, and Portland. We specialize in trade credit and political risk insurance and provide advisory services to companies and lenders who are looking to expand their trade finance capabilities.
If you are a company or a lender trying to better understand trade credit insurance or EXIM Bank programs and looking for guidance about how these programs can help improve working capital financing, our team would be delighted to learn more about your business and discuss options available to you. Please visit our website at www.impelloglobal.com or contact us directly at info@impelloglobal.com.