Basics of Exporting - Financial Assistance

Duty Drawback

The Export-Import Bank (Ex-Im Bank)
   Working Capital Guarantees
   Export Credit Insurance
   Guarantees
   Direct Loans
   Where to Apply for Ex-Im Bank Programs

Market Access Program (MAP)

Small Business Administration (SBA)
   Export Working Capital Program (EWCP)
   International Trade Loan Program
   7(a) Loan Guaranty
   Small Business Investment Companies

FAS Sugar Programs

FAS Facility Guarantee Program

FAS Export Credit Guarantee Program (GSM-102)

Drawback occurs when a duty or tax that had been lawfully collected is refunded or remitted, wholly or partially, because of a particular use made of the commodity on which the duty or tax was collected. Duty drawback is a means by which companies can recover import duties on products they later export. Companies can recover up to 99 percent of the duties paid on the imported materials. In this manner, the government encourages commerce and manufacturing. Duty drawbacks permit the American manufacturer to compete in foreign markets without the handicap of including in his costs, and consequently in his sales price, the duty paid on imported merchandise.

• Manufacturing Drawback – In this type of drawback, the product is made in the U.S. of either wholly or partially imported material. If the product is later exported, the company can recover 99 percent of the duties paid on these imported materials (U.S. Customs retains at least 1 percent to defray costs). A company can recover duties even though they never directly imported a product. Companies can persuade their suppliers to assign their drawbacks to the company when the duties are paid to Customs. In order to recover this drawback, claims must be made within three years of the export transaction.
• Same Condition Drawback – In this type of drawback, the items are exported in the same condition as when they were imported. This type of refund occurs when the goods do not meet the company's quality specifications, or when the goods are sold to someone outside the U.S. For a same condition drawback, claims must be made within three years.

Most importers utilize a freight forwarder to process both the import transaction and later the duty drawback paperwork. In this way, your company does not need to provide much additional paperwork for the drawback. For more complicated situations, a company that specializes in drawback requests can handle the refund process. These companies often handle the entire procedure on a contingency basis. In such cases, the consulting company is paid a percentage of the amount successfully refunded from Customs.

If your company has unrealized opportunities to recover duties from Customs, speak with your freight forwarder about duty drawback or contact U.S. Customs and Border Protection.

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The Export-Import Bank (Ex-Im Bank)

The Export-Import Bank (Ex-Im) is an independent U.S. Government agency that helps exporters obtain financing for foreign sales of U.S. goods and services. Ex-Im Bank guarantees to a lending bank that it will be repaid. This risk minimization enables banks to provide loans and payment guarantees that they might otherwise avoid. Ex-Im Bank provides guarantees of working capital loans for U.S. exporters, guarantees loan repayment and extends loans to foreign purchasers of U.S. goods and services. Ex-Im Bank also provides credit insurance to protect exporters against the risks of non-payment by foreign buyers for political or commercial reasons. In this respect, the Ex-Im Bank does not compete with commercial lenders, but assumes the risks these lenders cannot accept. In the context of these insurance programs, "commercial risks" are defined as insolvency and protracted default. Meanwhile, "political risks" are those of currency inconvertibility, license cancellation, expropriation, loss due to war, revolution, etc.

Today many countries provide export guarantees and credit insurance to their exporters, thus providing tough competition for U.S. companies with regard to extended terms of sale to their foreign customers. Companies in the U.S. should know that through the Ex-Im Bank they can acquire credit insurance almost as inexpensively as their competitors abroad. As an exporter, you should learn all the details and advantages of Ex-Im's programs and how they can help you expand your overseas sales. More information is available at www.exim.gov, but a brief overview of key programs follows.

Programs offered by Ex-Im Bank include:
Working Capital Guarantees cover 90 percent of the principal and interest on commercial loans to creditworthy small and medium-sized companies that need funds to buy or produce U.S. goods or services for export. Exporters may apply for a Preliminary Commitment, which is a letter from Ex-Im Bank outlining the terms and conditions under which it will provide a guarantee, and then use this letter to obtain the best financing terms from a private lender. The lender may also apply directly for a final authorization. Guarantees may be for a single transaction or a revolving line of credit. Generally, guaranteed loans have maturities of 12 months and are renewable.

Export Credit Insurance Policies protect against both political and commercial risks of a foreign buyer defaulting on payment. Policies may be obtained for single or repetitive export sales as well as for leases. Short-term policies generally cover 95 to 100 percent of the principal for political risks and 90-95 percent for commercial risks, as well as a specified amount of interest. These policies support the sale of consumer goods, raw materials and spare parts on terms of up to 180 days, and bulk agricultural commodities, consumer durable and capital goods on terms of up to 360 days. Capital goods may be insured for up to five years, depending upon the contract value, under medium-term policies.

Guarantees of commercial loans to foreign buyers of U.S. goods and services cover 100 percent of principal and interest against both political and commercial risks of nonpayment. The sale of capital items such as trucks, construction equipment, scientific apparatus, food processing machinery, medical equipment or project-related services, including architectural, industrial design and engineering services, are covered by medium-term guarantees. Long-term guarantees are available for major products, large capital goods and/or project-related services. The Bank's Credit Guarantee Facility Program can also be used to extend medium-term credit to buyers of U.S. capital goods and services through banks in certain foreign markets.

Direct Loans provide foreign buyers with competitive, fixed-rate financing for their purchases of U.S. goods.

Ex-Im Bank's loans, guarantees and medium-term insurance cover 85 percent of the contract price (100 percent of the financed portion). A 15 percent cash payment is required from the foreign buyer. Fees charged by the Ex-Im Bank are based upon risk assessment of the foreign buyer or guarantor, the buyer's country, and term of the credit. Compared to export credit agencies of different exporting countries, Ex-Im Bank's rates are highly competitive.

Where to Apply for Ex-Im Bank Programs
Ex-Im Bank's programs are easily accessible. Any responsible party - the foreign buyer, the U.S. exporter, a lending institution, or a firm representing either the buyer or the exporter - can apply directly to the Ex-Im Bank for a Letter of Interest (LI). Potential borrowers may also obtain assistance in the application process from any Ex-Im Bank office or call (800) 565-3946 (EXIM).

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Market Access Program (MAP)

SUSTA administers the Market Access Program (MAP) Branded on behalf of the Foreign Agricultural Service to the fifteen southern states and Puerto Rico. The MAP Branded reimburses exporters 50 percent of qualified international marketing expenses for promoting U.S. agricultural products to other countries. To qualify, firms must be small according to the Small Business Administration (SBA) guidelines, promote products under a brand name, and products must be at least 50 percent U.S. agricultural origin by weight, excluding added water and packaging. Products and promotional materials must indicate that the product is a "Product of the USA." Eligible activities under this program include trade shows, advertising, in-store demonstrations, product brochures and point of sale materials. Visit www.susta.org/services/map.html for more information about MAP Branded.

How MAP Branded Works
Companies apply for funding by outlining where money will be spent and how it will be used. (e.g., brochures, translation of brochure text, trade show expenses, shipment of samples, etc.). SUSTA reviews the application and prepares a contract which must be signed prior to conducting promotional activities. Then, participating companies or their importers expend their own funds to promote the U.S. products. The company collects invoices, proof of payment and proof of performance for the eligible activities and sends them to SUSTA. SUSTA then reimburses the company for half of the cost of the eligible expenses submitted. For more information or to receive an application, contact SUSTA or visit www.susta.org.

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Small Business Administration

The Small Business Administration also provides financial assistance programs for U.S. exporters. The SBA assists businesses in obtaining the needed capital to explore, establish or expand into international markets. To participate, a business must qualify as a small business under the SBA's size standards as well as meet other eligibility requirements.

The Office of International Trade of the SBA administers three programs to assist small exporters: the Export Working Capital Program (EWCP), the International Trade Loan Program (ITL), and Export Express. All three programs guarantee loans and therefore require the participation of an eligible commercial bank. Most commercial banks are familiar with SBA programs, and can provide more information or assist in the application process.

The Export Working Capital Program (EWCP) provides short-term, transaction-specific financing. The SBA guarantees up to 90 percent of the loan amount, up to $1.66 million. There is a $2 million maximum loan amount when used in conjunction with an Ex-Im co-guaranty. Exporters may use this money:

• to buy goods or services for export


• for pre-export financing of the manufacturing costs of goods for export


• for international receivables generated from these sales
• for standby letters of credit used as bid or performance bonds

Companies should contact a local U.S. Export Assistance Center to determine whether they are eligible for this type of financial assistance. A company may receive these funds for a period of up to one year.

Under the International Trade Loan Program, loans are made by lending institutions with an SBA guarantee for a certain portion of the loan. The SBA can guarantee a loan amount up to $1.75 million combined for borrowers with both an International Trade Loan and a separate working capital loan, as long as the SBA guaranty does not exceed $1.25 million on the working capital portion of the loan. Loan maturities are typically 10 to 15 years for machinery and equipment and up to 25 years for real estate. To receive this money, companies must:

• Use the loans to expand existing export markets or develop new ones
  OR
  
• Have been adversely affected by import competition

The Export Express program was designed by the SBA to facilitate loans that would enable a small firm to expand an existing market or develop a new one. The maximum loan amount is $250,000, and lenders use their own analyses, procedures, and documentation. Export Express monies can be used to finance export development activities like trade shows and translation of marketing materials, for revolving lines of credit, or to finance standby letters of credit when required as bid or performance bonds on foreign contracts.

Another assistance program of the SBA is the 7(a) Loan Guaranty, one of SBA's primary lending programs. This program provides loans to small businesses unable to secure financing on reasonable terms through normal lending channels. It is operated through private-sector lenders who provide loans, which are then guaranteed by the SBA, which has no funds for direct lending or grants. For most loans, there is no legislated limit for the total amount requested from the lender. The loans can be used for most business purposes, such as the purchase of real estate to house the business operations; construction, renovation or leasehold improvements; acquisition of furniture, fixtures, machinery and equipment; purchase of inventory; and working capital. Generally, these loans all have a maximum maturity of 25 years for real estate and equipment and a period of 7 years for working capital. To learn more about the terms and amounts of the 7(a) loans, visit www.sba.gov.

Small Business Investment Companies are privately owned and managed companies which are licensed and regulated by the SBA. They use their own funds, plus additional funds obtained from borrowing at favorable rates with an SBA guaranty and/or selling their preferred stock to the SBA, to make venture-capital investments in small businesses.

For more information about SBA's financial assistance programs, policies and requirements, call the SBA Answer Desk or the nearest SBA district office. Contact information for your local SBA office can be found at www.sba.gov.

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FAS Sugar Programs

The Sugar-Containing Products Re-Export Program is designed to put U.S. manufacturers of sugar-containing products on a level playing field. A participant in this program may buy world priced sugar from any of the refiner participants or their agents for use in products that will be exported on the world market.

The Refined Sugar Re-Export Program facilitates the use of domestic refining capacity to export refined sugar into the world market. This program allows one of three options for refiners. First, it allows refiners to export domestically produced refined sugar and later import world raw sugar. Second, it allows refiners to import world raw sugar for refining and distribution into the domestic market and later export refined sugar. Third, it allows refiners to import raw sugar, refine it, and export it into the world market.

The Sugar for the Production of Polyhydric Alcohol Program is established to provide world priced sugar to U.S. manufacturers of polyhydric alcohols. Participating U.S. manufacturers purchase world priced sugar from licensed refiners or their agents for use in the production of polyhydric alcohols, except polyhydric alcohols that are used as a substitute for sugar in human food consumption.

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FAS Facility Guarantee Program

The Facility Guarantee Program provides payment guarantees to facilitate the financing of manufactured goods and services exported from the U.S. to improve or establish agriculture-related facilities in emerging markets. By investing in these facilities, it is hoped that the demand for U.S. agricultural commodities and products will increase to these markets, where such demand may have previously been restricted due to inadequate storage, processing, or handling capabilities for these products.

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FAS Export Credit Guarantee Program (GSM-102)

The GSM-102 underwrites credit extended by private banks to approved foreign banks using dollar-denominated, irrevocable letters of credit for purchases of U.S. food and agricultural products by foreign buyers. FAS administers the program on behalf of the Commodity Credit Corporation (CCC), which issues the credit guarantees. GSM-102 covers credit terms of up to three years.

The CCC guarantees payments due from approved foreign banks to exporters or financial institutions in the United States. Typically, 98 percent of principal and a portion of interest are covered by a guarantee. Because payment is guaranteed, financial institutions in the United States can offer competitive credit terms to the foreign banks, usually with interest rates based on the London Inter Bank Offered Rate, or LIBOR. Any follow-on credit arrangements between the foreign bank and the importer are negotiated separately and are not covered by the CCC guarantee. Program announcements issued by FAS provide information on specific country and commodity allocations, length of credit periods, and other program information and requirements.

The CCC must qualify exporters for participation before accepting guarantee applications. An exporter must have a business office in the United States and must not be debarred or suspended from any U.S. government program. Financial institutions must meet established criteria and be approved by the CCC. The CCC sets limits and advises each approved foreign bank on the maximum amount the CCC can guarantee for that bank. Fee rates are based on the country risk that the CCC is undertaking, as well as the repayment term (tenor) and repayment frequency (annual or semi-annual) under the guarantee.

Information on the Sugar Re-Export, Facility Guarantee Program, GSM-102 and other FAS programs can be found on their website, at www.fas.usda.gov.

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