Many U.S. small businesses would like to expand operations by exporting their products overseas. And, according to data from Small Business Trends, there are significant benefits to doing so. For example, small businesses that export grow more quickly and are 8.5 percent less likely to go out of business than those that don’t. Additionally, exporting companies tend to outperform their non-exporting competitors by over 25 percent.
But there are also potential drawbacks to dealing with foreign markets. Many businesses, particularly MWBEs cite barriers to entry and regulatory concerns, while others simply don’t know where to start. What’s more, if a firm is exporting to emerging nations or those where the political and economic climate is less than ideal, they may have very real concerns about not getting paid.
That’s where Export Credit Insurance and the Export-Import (EXIM) Bank of the United States come in.
What Is the EXIM Bank?
The Export-Import Bank is the official export credit agency of the United States. An independent agency of the Executive branch of the federal government, it is tasked with supporting American businesses by facilitating the international export of U.S. goods and services. The agency steps in when lenders in the private sector are either unable or unwilling to provide the financing and other tools that small businesses need to compete overseas. Although the Bank requires a “reasonable assurance” of repayment, it is generally able to assume risks that lenders in the private sector avoid.
EXIM Bank provides a number of services, including:
- Financing and Loan guarantees
- Bid and Performance bonds
- Protection against nonpayment
Of these, one of the most useful to small businesses who are new to foreign markets is Export Credit Insurance, which provides both protection against nonpayment and access to working capital.
How Does Export Credit Insurance Work?
The overarching concept behind Export Credit Insurance is to provide protection against nonpayment when dealing with foreign buyers. With the protection of export credit insurance, businesses can offer attractive credit terms that increase their competitiveness and help them win sales. Additionally, EXIM will work with lenders to help qualified businesses obtain loans against foreign accounts receivable, thus giving the business more working capital and the capacity to continue to expand. The insurance covers commercial risks such as bankruptcy as well as political risks, such as war or the collapse of a foreign country’s currency. In the event any of these issues lead to nonpayment, the policy covers up to 95 percent of the foreign accounts receivable.
EXIM offers several different kinds of of Export Credit Insurance.
- Express Insurance is simple to obtain and covers multiple buyers. There is also an option to include pre-existing accounts in the policy
- Single-buyer insurance covers accounts receivable for a single customer at between 90 and 100 percent.
- Multi-buyer insurance covers multiple buyers under one policy. The rate of coverage ranges from 90 to 100 percent. A one-time $500 deposit is required.
- Letter of Credit insurance covers irrevocable letters of credit issued by foreign lenders for the financing of U.S. exports. Should the foreign lender fail to make payment or reimbursement to the insured bank, EXIM will reimburse the losses at the maximum amounts shown below:
- Sovereign financial institution: 100 percent
- Non-sovereign financial institution: 95 percent
- Approved agricultural commodities 98 percent
- Medium-term credit insurance provides coverage for businesses who extend credit terms of between one and five years, and sometimes as many as seven years, and up to $10 million. The buyer must provide a downpayment of at least 15 percent of the purchase price. If the buyer defaults, the financed portion of the purchase is covered 100 percent.
For a quick comparison of the various credit insurance policies offered by EXIM Bank, check out this chart. And to read about one small business’ success using EXIM Credit Insurance, check out this story on the Minority Business Development Agency’s blog.
About The Carmoon Group
The Carmoon Group Ltd. is a minority-owned insurance brokerage headquartered in Hicksville, New York. Through our large network of nationwide affiliates, we offer risk management solutions and comprehensive insurance programs for businesses in a wide range of industries. We have the expertise and experience to provide you optimal coverage at the best possible price. So why not give us a call today to set up an appointment for your insurance review? Or if you prefer, just reach out online and we’ll get back to you at a convenient time.