What is Medium Term Insurance?
Medium-term financing provides 3 to 7 years for a borrower to repay the purchase of capital equipment. This is typically supported by medium-term insurance or guarantees to minimize the risk of non-payment and to facilitate financing for the exporter. All capital equipment has the potential for medium-term financing however we see it used more frequently in industries such as agricultural equipment, packaging, food processing, construction, transportation, and manufacturing. There is a growing usage of medium-term financing in tech related industries including security screening and specialized transportation systems.
Medium term insurance and guarantees are generally available for repayment terms ranging from 3 to 7 years and require a minimum 15% cash down payment, quarterly or semi-annual installments, and a lien on the financed equipment. The majority of medium term financings include a bank as the funding source, so matching the manufacturer with an experienced lender is essential for these programs to be successful.
One of the primary providers is the Export-Import Bank of the U.S. They offer both medium term insurance and guarantees, depending on the size, tenor, and structure of the individual financing. Their insurance product is available primarily for exporters that want to extend credit to their client directly but can also be utilized by lenders. Those who do this generally know their customer very well and want to take credit with their customer for financing them directly rather than having the bank step in and do it for them. Behind the scenes, they sell the insured promissory note to their bank and assign to them the credit insurance policy.
The medium term guarantee product of the Export-Import Bank is available to lenders or finance companies only. In today’s market, most lenders prefer the guarantee program as it is a more secure product and may offer slightly better pricing.
Private Insurance Providers
Due to the economic impact of the pandemic, private insurers are highly selective when considering medium-term insurance in emerging markets. There are up to 15 different markets that could be approached for a medium term transaction and each has its own credit criteria and risk appetite.
Why Provide this Type of Lending?
Most exporters who use medium-term financing are using it as a competitive tool. By offering longer terms they are able to compete more effectively against European or Asian manufacturers, who use this product aggressively to grow market share. The companies who are most successful at this product have it built into their corporate culture, rather than considering it only as an afterthought.
Impello Global provides advisory services to our clients rather than just acting as their broker of medium term insurance. We work directly with the manufacturing company and become part of their team, providing a comprehensive education on the product, its benefits, and how it works. Impello Global also works with the finance team, identifying lender partners and enabling the company to monetize the insured asset and provide cash flow now rather than over a period of years. Our approach is tailored to each client and individualized solutions are provided.
Next up we will talk about why you should consider using medium term insurance and how it can directly benefit you.
About Impello Global
Impello Global is a US based trade finance advisory boutique and trade credit and political risk insurance brokerage. 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 email@example.com.