Primer on Trade Financing
September 2006
                                                                                                                                                                                                            Exporters and companies thinking of exporting or investing abroad can brush up this school season on their reading and ’rithmetic of international trade financing. Here are four financing terms that spell out handy services from Canada’s trade finance agency, Export Development Canada (EDC):

Pre-Shipment Financing:
One of the biggest obstacles many smaller exporters face is getting extra cash to increase production and fund other up-front costs associated with new contracts. To address this issue, EDC, in cooperation with Canadian financial institutions, has developed a risk-sharing guarantee.

This guarantee covers the bank for up to 75 per cent of the loan value, thus encouraging it to lend money to companies specifically for their international activities. The benefits include giving exporters more working capital to take on a lucrative international deal.

Foreign Buyer Financing:
Think of how often Canadians consumers buy big-ticket items like furniture on credit. The “buy now, pay later” option is also attractive to foreign customers, giving them a chance to earn more money before paying their own bills. Canadian companies can be more competitive internationally by offering their foreign customers flexible financing and longer payment terms.

But most companies can’t afford to do this. EDC can – either directly or through one of its financial partners, depending on certain qualifications of the foreign customer. As a result, EDC assumes the risk of non-payment, while you, the Canadian exporter, get cash up front.

Master Accounts Receivable Guarantee (MARG):
This tool is useful for small and medium exporters (with annual sales up to $10 million) who need to increase their line of credit. As long as your company has eligible foreign receivables, it could get an additional loan up to $500,000 from its own financial institution. EDC uses these receivables as security to insure the bank against a loss if you fail to repay your loan. MARG applications can often be approved within two business days.

Bank Guarantees:
For smaller Canadian companies venturing to sell products into risky developing markets, they may have difficulties getting a loan to cover some of the production and related costs. EDC can help make the loan happen by providing a guarantee to the Canadian or international financial institution involved. For deals valued at $10 million or less, EDC can cover up to 85 per cent of the export contract’s value.

These and other financing tools add up to both creative and practical ways to maintain and attract new foreign customers.

Subscribe now to receive a new
Small Business article every month

Export Development Canada (EDC) is Canada’s export credit agency, offering innovative commercial solutions to help Canadian exporters and investors expand their international business. EDC’s knowledge and partnerships are used by 7,000 Canadian companies and their global customers in up to 200 markets worldwide each year. More than 90 per cent of EDC's customers are small- and-medium-sized enterprises. To reach EDC, contact
1-866-297-1255 or visit www.edc.ca/smallbusiness.