Export Credit InsuranceExport Credit Insurance
At least four benefits accrue to exporters who insure themselves against non-payment.
First, insurance reduces or eliminates the risk of an actual loss of cash income from the export sale. The Export-Import Bank of the United States (Ex-Im Bank) assumes 90 to 100 percent of the risk concerning commercial and certain political risks, such as the inconvertibility of currency, bankruptcy, protracted default, or war. Second, export credit insurance allows exporters to provide qualifying international buyers with advantageous terms of credit. When the buyer’s lender is unable or unwilling to loan because of risk, export credit insurance from Ex-Im Bank covers the risk and enables the lender to extend credit. In that case, the buyer or buyers can purchase more insurance over time.
A third benefit is that a company’s working capital cash flow improves when a lender’s line of credit is insured. Ex-Im Bank’s insurance transforms an exporter’s foreign accounts receivables into receivables insured by the U.S. government. A list of qualified participating lenders is maintained at http://exim.gov. Fourth, new markets open to exporters where Ex-Im Bank offers coverage.
Payment Terms and Policies
Short-term means 180 days or less; this type of insurance typically covers noncapital goods, components, raw materials, spare parts, and most services. In the categories of consumer durables, capital goods, and bulk agricultural commodities, Ex-Im Bank insurance policies extend up to 360 days. The products must be shipped from the United States and have at least 50 percent U.S. content (excluding markup).
Medium-term insurance covers up to 85 percent of the contract value and protects amounts under $10 million on tenors up to 5 years. This financing applies to international buyers of capital equipment or related services.
A Single-Buyer policy provides credit protection for shipments to one specific buyer. Premium rates are based on tenor, type of buyer, and the risk rating for the buyer’s country.
A Multi-Buyer policy allows businesses to insure all sales to eligible international buyers to whom they extend “open account” credit terms. Ex-Im Bank provides a 25 percent discount on its short-term multi-buyer export credit insurance to exporters who have an Ex-Im Bank or a Small Business Administration (SBA) working capital loan. Ex-Im Bank’s popular Express Insurance product includes a streamlined application, policy quotation, and buyer credit decisions up to $300,000 within 5 working days.
Lender Policies
Ex-Im Bank offers insurance policies for financial institutions that may support exporters’ sales. A Bank Letter of Credit policy protects U.S.-based banks against losses on irrevocable letters of credit opened to finance U.S. exports. For example, when a foreign bank fails to make payments or reimbursements, Ex-Im Bank’s Bank Letter of Credit will cover 95 to 100 percent.
A policy for Financial Institution Buyer Credit protects lenders that finance international buyers of U.S. goods and services for periods of less than 1 year. The policy covers commercial risks at a rate of 90 percent and 100 percent of political risks for private-sector buyers.
To learn more about comprehensive risk policies underwritten by SBA or Ex-Im Bank, consult your lender or export finance manager by calling (800) 565-3946 or visit http://exim.gov/smallbusiness.