Cross-border equipment financing
International leasing deals don’t always resemble domestic transactions but the result is essentially the same: you get to make your sales and your foreign customers get lease payment terms not available in their own countries.
When US equipment vendors contact Meridian to inquire about international “leasing,” often they just mean their foreign customers are seeking some kind of payment terms. The solution may be a lease but it may also be some other kind of cross-border trade finance . . . often with a lower cost and faster turnaround time.
International finance leases
Finance leases with terms up to five years may be feasible for eligible export transactions, but in countries where capital leases are regarded strictly as conditional sales agreements an international lease may closely resemble a straightforward equipment loan.
In these cases the only significant difference between an international lease and a cross-border loan may be in the wording of the credit documents. The financing structure, export credit insurance, political risk insurance, payment streams, and lease-end options (usually a one-dollar buyout) for finance leases and loans are virtually the same.
Synthetic leases, FMV leases, sale-leasebacks, and myriad other equipment leasing arrangements available in the USA are not practical for most international lease transactions. Challenges include due diligence, perfecting security interest in overseas collateral, different international leasing regulations, accounting principles, tariffs, and tax laws.
International operating leases
International leasing in the form of true leases or rental agreements may be feasible for exports of very large capital equipment with a long economic life, consistent with FAS 13 and IAS 17 international leasing guidelines.
As long as the international lease agreement contains a “hell or high water” clause, a cross-border operating lease’s payment stream can in principle be credit-insured and financed for up to five years.
Beyond mitigating nonpayment risks, credit and political risk insurance on an international lease may protect against a lessor’s inability to exercise its security interest in the collateral following a payment default or at the end of the lease term.
Export credit for small-ticket equipment
International leasing is available only for large-ticket deals. Financing of small-ticket equipment exports is structured differently from international leasing. Payment terms may need to be shorter, but offering any export credit terms at all can give vendors a powerful competitive advantage vs. insisting on cash in advance or letters of credit.
Equipment vendors play an active role in small-ticket export deals by extending credit terms directly to their international customers. This is made possible by protecting the vendor against virtually all nonpayment risks with an export credit insurance policy.
The vendor gets paid by financing its insured foreign receivables as soon as the equipment has shipped. Or, knowing they’re covered with export credit insurance, some vendors elect to carry their foreign receivables themselves. In any case, the vendor usually retains a small portion (typically 5-10%) of the foreign credit risk.
Meridian supports vendors every step of the way: helping them make credit decisions on their international customers, brokering their export credit insurance policies, and arranging financing for their foreign receivables.
Foreign companies with U.S. operations
Companies headquartered in other countries establish operations in the USA to serve their USA/Americas markets and to take advantage of other benefits of doing business here. The largest volume of foreign direct investment in the USA comes from Europe, followed by Asia and Canada. Growing numbers of companies from Latin America, the Middle East, and Africa are predicted to set up shop in the USA in coming years.
When these foreign-owned U.S. companies need to finance their acquisitions of capital equipment, they may face challenges . . . arising from their credit strength residing in their home country and the equipment being located in the USA. Their local financial institutions may not accept collateral located outside their country’s borders, whereas U.S. banks/lenders may be unwilling to take on overseas credit risks.
Meridian may be able to arrange equipment loans or leasing for creditworthy foreign companies’ U.S. operations. Creditworthiness is assessed based on audited (or equivalent) financial statements, industry, time in business, prior borrowing/repayment performance, and other criteria . . . coupled with the ability to perfect a first-position security interest (UCC lien filing) on the equipment.
Credit insurance may be required to help the lender/lessor manage the risk of not getting paid by an overseas debtor. Meridian can arrange this coverage as well, having specialized in brokering trade credit 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 U.S. companies that need equipment financing for their operations in other countries.
Why you should work with Meridian
Over the past 25 years, Meridian Finance Group has helped hundreds of vendors increase their export sales using international leasing, export credit insurance, and other trade finance tools.
Most international lease transactions require export credit insurance. Meridian’s combined expertise in brokering credit insurance and arranging cross-border equipment financing makes us the most effective credit insurance broker in the market for vendors, captive lenders, lessors, and other funding sources.
While we’re proficient at using Ex-Im Bank programs and other conventional trade finance techniques, many of our transactions are structured using alternative methods we’ve formulated ourselves by working with a wide range of vendors, lessees, countries, and industries.
We understand your business. Our staff is multicultural and multilingual, with experience not only in international leasing and credit insurance, but also exporting, manufacturing, operations, logistics, and international distribution.