Export-Import Bank to Provide Liquidity to Small Business Exporters

WASHINGTON, D.C. --- The Export-Import Bank of the United States (Ex-Im Bank) on Nov. 25 enhanced several of its trade finance products to help counter the tightening of credit and the lack of liquidity in the export marketplace and help U.S. exporters, and in particular small-businesses, create and maintain export-related jobs. The changes, briefed to the Bank's board of directors this morning, expand access to the Bank's trade finance products, making more U.S. exporters, including more small business exporters, and lenders, eligible to apply for financing backed by Ex-Im Bank. Board action today will also expedite billions of dollars in U.S. exports to South Korea. "These actions help maintain the flow of U.S. exports to international buyers and keep U.S. export workers on the job," said James H. Lambright, chairman and president of Ex-Im Bank. "We are pleased to do what we can to help meet needs of U.S. exporters facing difficult economic conditions."
The Bank's board of directors this morning granted special delegated authority to help meet increased demand to insure U.S. lenders' confirmation of Korean bank letters of credit. The board's action allows senior Ex-Im Bank officials to approve requests for up to $2.9 billion in insurance cover involving letters of credit issued by 11 Korean financial institutions.
Surveys of relevant confirming banks and brokers indicate that due to instability in the market there is a significant gap in commercial capacity available to support letters of credit issued by Korean financial institutions. The increased demand for confirmed letters of credit stems from the combination of the continuing high volume of U.S. exports to South Korea and weaker macroeconomic conditions.
According to the Office of the U.S. Trade Representative, U.S. exports to South Korea exceeded $34 billion in 2007. The vast majority of U.S. exporters selling to South Korea are small- and medium-sized businesses, according to the U.S. Census Bureau. In addition to the action involving Korean exports, Ex-Im Bank will be increasing access to direct lending and working capital loan guarantees, the latter of critical importance to small- and medium-sized exporters and companies providing goods and services destined for export by other U.S. companies.
Using existing authority to make direct loans, Ex-Im Bank can work with lenders to structure transactions to adapt to their financial conditions or restrictions. This will be done on a case-by-case basis, focusing on supporting new exports either directly or indirectly. It is intended that the servicing of direct loans will be done by commercial banks.
The Bank's Working Capital loan guarantee product, most frequently used by small-business exporters, has various requirements and/or restrictions that will be modified to provide increased liquidity to exporters. For example:
Companies that produce goods or services that are sold to U.S. companies and are subsequently exported will now be eligible to apply for working capital loans guaranteed by Ex-Im Bank. In the past, Ex-Im Bank's working capital loan guarantee product has not been available to small-businesses that supply their products or services to U.S. exporters, but do not themselves directly export. Ex-Im Bank is raising from 10 percent to 100 percent the amount of a working capital loan guarantee available for these "indirect" exporters, the first time such companies have, on their own, been able to access the product.
Ex-Im Bank will now consider covering warranty letters of credit up to 20 percent of the loan amount or $1.5 million, whichever is lower, for a term of 12 months. This is a tripling of the previous ceiling of $500,000 which the Bank believes will provide additional liquidity to exporters and help them be more competitive. Exporters using Ex-Im Bank for such coverage are required to provide only 25 percent cash collateral versus the standard 100 percent cash collateral in the private sector. Staff will now consider, on a case-by-case basis, reducing collateral requirements for letters of credit to 10 percent of face value, down from 25 percent currently versus 100 percent cash collateral for all letters of credit generally required by the private sector. nw