Since the onset of the pandemic, approval rates on loan, line of credits, and overall lending have declined. The current economic environment presents substantial challenges for banks, and their clients. The shift from lending to deposit generation is leaving many businesses without access to financing options.
With the rise of interest rates and an uncertain economy, access to working capital needed to maintain operations is increasingly difficult for businesses today. The risk aversion is greater when the business in question is an exporter, as global markets can be even more fickle than domestic ones.
Low credit ratings (or no credit rating) shuts the door to traditional supply chain finance (SCF) programs for many companies. For those who are able to gain access to SCF, the costs can be very high, which negatively impacts supplier resiliency, and access to competitive financing, and overall program success.
The situation, however, is not dire for exporters needing a working capital boost to maintain and grow their businesses. For more than a decade, the Export-Import Bank of the United States (EXIM) has been supporting U.S. exporters and their suppliers with its Supply Chain Finance Guarantee Program.
When private sector lenders are unable or unwilling to provide financing to exporters due to low credit ratings (or no credit rating), EXIM fills in the gap for American businesses by equipping them with the financing tools necessary to compete for global sales. Because it is backed by the full faith and credit of the United States, EXIM assumes credit risks that banks and other financial institutions are unable or unwilling to accept.
The financial institution is still providing the funding, but with the EXIM Supply Chain Finance Guarantee Program, there is a 90-percent guarantee to lenders who provide SCF funding to exporters.
“The guarantee is the best of both worlds,” said Miguel Serricchio, Chief Channel Development Officer at LSQ. “Buyers and suppliers get the working capital they need while lenders get the peace of mind surrounding the risk of backing the supply chain finance program. In the end, it leads to a much stronger supply chain, protects jobs in the U.S., and creates a stronger funder and business relationship.”
“Since the onset of the pandemic, EXIM has stepped in to fill the gap left by limited private sector lending capacity for SCF programs,” said Steven Freshour, Vice-President Business Credit Division at EXIM. “EXIM’s support has enabled exporters to ensure their suppliers have the working capital they need by mitigating risk for lenders. Much of our support has benefited small businesses throughout the U.S. who may not have been able to obtain working capital facilities on their own.”
The SCF Guarantee reduces risks to private lenders and increases their willingness to extend more funding to U.S. exporters. EXIM’s goal with the guarantee program is to create a more equitable playing field for U.S. companies in foreign markets and, in turn, create more higher-paying jobs in America. It does so by:
- Enabling SCF programs for non-investment grade companies
- Facilitating underwriting of eligible companies by reducing credit risk
- Lowering SCF capital costs and increases availability for buyers and sellers
To participate in an EXIM Supply Chain Finance Guarantee program with a lender, the exporter must meet certain requirements, including:
- Being U.S. domiciled
- Produces goods in, and exports from, the United States
- Certifies that export products contain more than 50 percent U.S. content
- Exported product inputs come from suppliers based in the United States
EXIM and LSQ
LSQ is an EXIM-approved lender and SCF platform provider and has extensive experience implementing and executing programs using the guarantee. Our combined solution has proven to expand access to SCF programs, reduce costs to sellers, and improve working capital across the supply chain.
How Supply Chain Finance Works with LSQ FastTrack and the EXIM Guarantee
In its simplest form, SCF with EXIM takes place in five stages:
- Buyer purchases goods or services from the seller.
- The seller delivers purchased goods or services and invoices the buyer.
- The buyer approves the invoice and uploads it to LSQ FastTrack.
- The seller selects invoices for early payment in LSQ FastTrack for a fee or wait for the invoice to mature and get paid by the buyer at no fee.
- The buyer settles the account with payment to the lender in accordance with the agreed terms.
SCF presents a great opportunity for U.S. exporters looking to gain a competitive foothold in global markets. But getting a program off the ground with risk-averse financial partners is a challenge. Contact Miguel Serricchio to learn more and explore if an EXIM-backed supply chain finance solution is a fit for your business.