Export Finance

Export financing

Facing limited access to capital in their own countries, and unable or unwilling to borrow from local banks or other lenders, a growing number of equipment buyers overseas are seeking export financing from their US suppliers.

Meridian arranges export financing for all kinds of capital equipment, as long as the buyer is a well-established creditworthy company located in one of the many foreign markets where Meridian does business.

The equipment can be manufactured in the USA or in other countries. Likewise, the equipment can be shipped from the USA or elsewhere, although for some export financing transactions the sale may need to be invoiced by a vendor located in the USA.

Export financing with payment terms from one to five years is arranged by Meridian for equipment sales between $500,000 and $10,000,000 in size. We have the capacity to support larger export financing transactions, but for eight figures and above it’s more typical for Meridian to broker the requisite credit insurance and for a bank/lender to arrange the export financing on its own.

Vendors of smaller-ticket equipment can offer shorter-term export financing to their international customers using export credit insurance, in some cases extending payment terms up to twelve months with no minimum transaction size. Short-term export financing can also be insured for international sales of raw materials, parts, finished goods, commodities, and all other kinds of products and services.

Supplier credits

Export financing transactions are structured either as supplier credits or buyer credits.

Under a supplier credit, the foreign buyer pays the exporter for the equipment with a promissory note, which the exporter finances, discounts, or sells to a bank/lender immediately following shipment of the equipment. This kind of export finance transaction is made possible because the supplier obtains export credit insurance which protects the promissory note against virtually all nonpayment risks.

Compared to buyer credits (see below), supplier credits leverage the relationship between the exporter and the foreign buyer to engender faster turnaround times, more flexible insurance underwriting, and lower export finance costs. In some cases the exporter may need to retain a small portion of the default risk on the foreign buyer.

Buyer credits

Under a buyer credit, the foreign buyer’s promissory note is addressed directly to a bank/lender who pays the exporter’s invoice immediately following shipment of the equipment. This kind of export financing transaction is made possible because the lender obtains its own export credit insurance policy on the promissory note.

Compared to supplier credits (see above), buyer credits may take longer to get underwritten and funded. The lender needs to visit the foreign buyer in-country to perform its own due diligence. The export finance underwriting process is more involved because the bank/lender is typically not a direct participant in the underlying trade transaction.

Export financing with a buyer credit structure is most feasible if the foreign customer is a very large company with IFRS audited financial statements. Or if the transaction qualifies for support from Ex-Im Bank or another country’s official export credit agency (ECA). While Ex-Im Bank underwriting typically requires longer turnaround times than private-sector transactions, Ex-Im Bank may be prepared to work with smaller buyers, suppliers, and deal sizes.

Information requirements

Meridian evaluates the creditworthiness of foreign buyers for export financing based on information including, but not limited to, three years of annual reports or audited financial statements, interim financials, credit reports, bank and trade references, searches of public records, buyer visits, market research, and other due diligence.

The first step in seeking export financing is to provide Meridian with your foreign customer’s most recent audited financial statements and your equipment quotation or sales contract. In most cases this information enables us to gauge the feasibility of arranging export financing for the transaction, at which point an initial proposal or term sheet can go out to the exporter (supplier credit) or the buyer (buyer credit).

Please note that when arranging export financing we consider the cogency of the underlying trade transaction to be as important as the foreign buyer’s financial information. While not an absolute requirement, we do have a preference for scenarios in which the exporter and the foreign buyer have a history of doing business together, whether using trade finance or otherwise.

U.S. companies with equipment overseas

U.S. companies establish operations in other countries to better serve their overseas markets and to take advantage of benefits of doing business there. Historically the largest volume of direct U.S. investment has been in Europe, followed by Asia and Latin America. In coming years growing numbers of U.S. companies are predicted to set up shop in the Middle East, Africa, and other emerging markets.

When these U.S. companies need to finance acquisitions of capital equipment for their overseas operations, they may face challenges . . . arising from their credit strength residing here but the equipment being located abroad. U.S. financial institutions may not accept collateral located outside this country’s borders, whereas banks/lenders in the country where the operation is located may be unwilling to take on U.S. (foreign to them) credit risks.

Meridian may be able to arrange equipment loans or leasing for creditworthy U.S. companies’ overseas operations. Creditworthiness is assessed based on audited (or equivalent) financial statements, industry, time in business, prior borrowing/repayment performance, and other criteria.

For U.S. companies that are less than optimally creditworthy, especially where it’s difficult to perfect a first-position security interest on assets in the country where they’re operating, the transaction may still be able to proceed if the company can pledge sufficient unencumbered domestic U.S. assets as additional collateral.

Political risk insurance may be required to help the lender/lessor manage the risk of not being able to exercise its lien on the overseas equipment and protect against expropriation, violence, and other political events or government actions. Meridian can arrange this coverage as well, having specialized in brokering political risk insurance for more than 25 years.

The minimum transaction size for this kind of financing is $250K. There’s no practical maximum deal size, other than as limited by the company’s creditworthiness. Payment terms are typically not longer than five years. The equipment can be sourced from the USA or from another country. In the latter case the vendor may be paid directly or by the borrower/lessee, with the funding structured as a reimbursement. In either case, the transaction currency must be USD.

Meridian also arranges financing for transactions where these circumstances are reversed. I.e., creditworthy companies headquartered overseas that need equipment financing for their operations in the USA.

Why you should work with Meridian

Over the past 25 years, Meridian Finance Group has helped hundreds of companies expand their international sales and operations using cross-border equipment loans and leasing, trade credit insurance, and other export financing tools.

While we’re proficient at using Ex-Im Bank programs and other conventional export financing techniques, many of our transactions are structured using alternative methods we’ve formulated ourselves by working with a wide range of exporters, buyers, countries, and industries.

Most cross-border equipment financing transactions require export credit insurance. Meridian’s combined expertise in brokering credit insurance and arranging export financing makes us the most effective credit insurance broker in the market for equipment exporters and for the banks/lenders that fund their international sales.

We understand your business. Our staff is multicultural and multilingual, with experience not only in export financing and credit insurance, but also sales, manufacturing, operations, logistics, and international distribution.

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