by Philip H. de Leon
Many U.S. exporters have struggled with the challenge of
obtaining financing for exports to Eurasia. Sometimes, this can seem like an
insurmountable obstacle, but the reality is that financing can be found as long
as careful preparation is undertaken and the requisite information is available
to attract financing. A good approach is to consider your deal from the
standpoint of a finance provider. The following is information that a finance
provider looks for in considering a Eurasian transaction. Addressing these
issues is essential if a U.S. exporter wants to participate in BISNIS
FinanceLink program (http://bisnis.doc.gov/bisnis/finlink), a free
service that forwards a financing request directly to finance providers for
consideration.
Is there an identified buyer, and in which country?
This is an essential element to start with, since the
reliability of the buyer will be a key selection criterion and its location
(country/city) a good indication if repayment can reasonably be expected. The
absence of an identified buyer can be perceived as an indication that there is
no market for the export considered.
Has the company/buyer been audited?
Although the chances of getting a positive answer are
limited, it is a good to ask, because some Eurasia companies have been audited,
even per IAS/GAAP standards. A look at the buyer's financial statements can
help in assessing repayment capabilities over time.
What is the amount involved?
Since Eurasia is a challenging market, processing a finance
request can be costly and time consuming for a trade finance provider. Not long
ago, it was difficult to find financing for small transaction amounts because
of the low returns they generate and the associated high fixed costs. However,
BISNIS has recently noted a surge in interest from finance providers in
financing deals between $100,000 and $10 million. This is a dramatic change
that can partly be explained by the fact that the world economic slowdown has
not affected Eurasia as it has traditional export markets such as Asia and
South America, causing finance providers to reconsider their attitude toward
the market.
If the amount sought is much lower than $100,000, an
exporter may want to recommend that the buyer try to work out a loan
arrangement with local banks. One option is for the buyer to look for a local
bank that is participating in a program with a multilateral institution, such
as the European Bank for Reconstruction and Development (EBRD) Trade
Facilitation Program (www.ebrd.com/apply/trade/about/main.htm) whereby
the EBRD takes the political and commercial payment risk of transactions
undertaken by issuing banks.
Who does the buyer bank with in Eurasia?
There are many small and/or unreliable banks in Eurasia that
do not have correspondent relationships with Western banks or have not been
audited to Western standards. It may be necessary to encourage a buyer to seek
out larger, more stable, or well-established regional or national banks,
particularly those with relationships with Western banks. U.S. exporters
interested in applying to the U.S. Export-Import Bank for financing assistance
should (1) check Ex-Im Bank's Country Limitation Schedule (www.exim.gov) to see
if Ex-Im financing is available in the market and (2) check with Ex-Im Bank
regarding whether there is requirement for a local bank guarantee.
Will sufficient cash flow be generated from the project to
repay the loan?
If the buyer is purchasing raw materials to process, is
there a market for the finished good? If the purchase is for equipment, is
there a market to absorb the goods that will be manufactured as a result of the
increased or new production capabilities?
Have all the aspects of shipment been considered?
Have the exporter and the buyer agreed on the best way to
ship the goods and determined who will pay the freight and insurance costs? Are
they familiar with the necessary certification requirements and shipping
documentation? Has a timeline for the transfer of ownership been determined?
These are important considerations that must be addressed before a contract is
signed.
What is the status of the contract?
Is the contract more of a protocol of agreement, a
preliminary contract, or a full-fledged contract? Was it prepared by the
exporter or by a law firm familiar with Eurasian business practices? Does it
contain an arbitration clause enabling the settlement of disputes outside the
local court system? It is highly recommended that all points of the contract be
determined at once, rather than left for a later date. The agreement should be
as comprehensive as possible.
Uncertainty on any of the above issues is a signal that more
information and preparation are needed.
Philip H. de Leon covers finance issues for BISNIS in
Washington, D.C.
This report is provided courtesy of the Business
Information Service for the Newly Independent States
(BISNIS)
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