Observations on Financing Small Businesses' Exports

Observations on Financing Small Businesses' Exports

by Robert S. Fisher

The practitioner with an aspiring exporter as a client will wish to be familiar with letters of credit and other protective devices that will guarantee that the client ultimately receives payment for the shipped goods. Some of the tools that may be available are highlighted in this emerging issues commentary.

Excerpt:

Governments sponsor trade support programs designed to promote the country's exports. These programs often include a variety of financing and insurance programs. The Export-Import Bank of the United States (Ex-Im Bank) is the official export credit agency of the United States. Ex-Im Bank assists U.S. businesses in financing the export of goods and services to international markets. A business seeking to expand its marketing overseas may consider looking to the Ex-Im Bank. The bank may offer businesses insurance covering, among other things, the risk of buyer nonpayment in connection with certain letter of credit transactions.

Historically, the export trade has been the province of mid- to large-size companies or huge distributors, which are better able to absorb the risks of such trade and better schooled in how to sidestep the pitfalls. Farmers, for instance, often sell for export through domestic cooperatives, which in turn deal with international distributors. In the defense sector, a small business with a hot product may wish or be forced to deal with big defense contractors. This can apply to software as well as to hard or durable goods.

Options for Small Businesses

The practitioner with an aspiring exporter as a client will wish to be familiar with letters of credit and other protective devices that will guarantee that the client ultimately receives payment for the shipped goods. Some of the tools that may be available are highlighted below.

1. For an exporter from the U.S., a U.S. bank can guarantee that the importer overseas will pay your client when it delivers a product or service or, more likely, on a guarantee that a foreign bank (usually proposed by the importer) will make good on its letter of credit or guarantee of payment by paying the exporter on notice of the foreign importer's default.

2. An exporter may also need to post a surety bond to protect the foreign importer, if a bank will not issue a letter of credit, guaranteeing the exporter's performance. If a bond is not available from a bank because the terms of performance are too complex or risky, the surety subsidiary of an insurance company may provide relief. Unless the client has a direct relationship with such a surety company, such a bond typically must be negotiated with one of the major insurance brokers.

Access the full version of "Observations on Financing Small Businesses' Exports" with your lexis.com ID. Additional fees may be incurred.

If you do not have a lexis.com ID, you can purchase this commentary and additional Emerging Issues Commentaries from the LexisNexis Store.

Lexis.com subscribers can access the complete set of Emerging Issues Analysis for Commercial Law and the Commercial Area of Law page.

For more information about LexisNexis products and solutions connect with us through our corporate site.

Robert S. Fisher has practiced extensively in the area of consumer financing of motor vehicles, recreational vehicles, recreational yachts, general aviation aircraft, and general commercial equipment leasing. He has represented banks, finance, general leasing, and yacht chartering companies in setting up leasing programs and in the purchase, sale, and securitization of vehicles and equipment.

He has lectured on recreational vessel matters before the Maritime Subcommittee of the American Bar Association, where he is chair of the Boat Working Group of the National Title Task Force, and at the Association of the Bar of the City of New York, where he was a member for two terms of the Admiralty Committee. He has also lectured for the Conference on Consumer Finance Law of Oklahoma City University School of Law and written for the Consumer Financial Quarterly and the Rutgers Law Review. Mr. Fisher writes frequently on maritime legal topics for Yachting Magazine.