Financing Alternatives for SME Exporters OACFDC Annual Conference June 2005 Mary L. Palmer Relationship Manager EDCs Financial Services for Small- and Medium-sized Businesses OACFDC Annual Conference June 2005 Mary L. Palmer Relationship Manager EDCs Financial Services for Small- and Medium-sized Businesses

2 Who is EDC ? Financing Alternatives Winning the Deal Performance Security Guarantees (PSG) Financing the Deal Pre-Shipment Financing (PSF) Getting Paid for the Deal Buyer Financing Options Discounting Accounts Receivable Question & Answer Todays Agenda :

3 l Broad range of financial risk management services l Extensive in-house market analysis/expertise l Credit management expertise l A Canadian Crown corporation founded in 1944 l Commercial orientation with a public service mandate l Supported $54.9 export sales from 6,962 cos. (90% were SMEs) l Worldwide Offices: Mexico, Brazil, Malaysia, China, India, Poland l Canadian Dollar Debt rates AAA/Foreign Currency Debt rated AA2 l A self-sustaining organization l User-pay l Consistently profitable Export Development Canada

4 Financing Alternatives : Winning the Deal with Bonds t Contract

5 Obtaining Advance or Progress payments may be difficult to negotiate depending on your industry / reputation potentially impacting your working capital. In exchange for a progress payment consider offering your buyer a Letter of Credit or Guarantee. Your financial institution, with EDCs Performance Security Guarantee, may post an L/C/G on your behalf without tying up your working capital. Winning the Deal with Bonds

6 You win: Land the contract without providing more security or tying up working capital. Your client wins: Theyre in possession of a L/C/G which protects their investment in you. Your financial institution wins: Their L/C/G is 100% guaranteed through EDC. EDC wins: Fulfilled our mandate to support exports. A Win-Win Situation

7 Financing Alternatives : Inventory Financing Build

8 Common challenge facing many SMEs is financing the build or pre-shipment period. Our Pre-Shipment Financing was designed to help finance up front COSTS in relation to inventory financing during the pre-shipment or build period that a financial institution may be adverse to fully financing. EDC works with your financial institution by guaranteeing a portion of an operating (bulge) facility. Inventory Financing

9 Structure & Duration 75/25 risk share with financial institution. Your financial institution controls disbursement of funds. Can be specific contract or revolving. Security No additional security required by EDC. We share on the existing security package. Fees & Pricing Both determined by the financial institution. Inventory Financing

10 Financing Alternatives : Getting Paid for the Deal Deliver Get paid

11 Financing for Your Buyer EDC can finance your buyer…. For transactions less than USD $100,000 EDC can lend directly, on an unsecured basis, to your client for capital goods. Funds are disbursed directly to you upon hitting milestones. Saves your client from having to arrange formal financing. Saves your client from incurring legal fees. Easy, online, application. For transactions over USD $100,000 EDC can arrange financing with several variations / structures.

12 Get Paid Available from Export Credit Agencies such as EDC, and from private credit insurers Risks typically covered: Buyer Insolvency or bankruptcy Payment default Repudiation Contract cancellation Political risks (war, revolution, transfer difficulties, cancellation of export/import permits) EDC insurance pays you 90% of your loss when your buyer doesnt pay Ensure you get paid, with Accounts Receivable Insurance

13 Accounts Receivable lnsurance l Risks Commercial l Buyer Insolvency l Default (non-payment) l Contract cancellation by buyer l refusal of goods Political l Conversion and transfer difficulties l War and related disturbances l Cancellation of import/export permit l Moratorium on countrys external debt

14 Accounts Receivable Insurance What are the Benefits? Increases Sales: into high-risk markets more attractive payment terms to buyers Protects against non payment and cost-incurred losses: covers 90% of your losses Allows you to leverage your foreign receivables: you banker may increase working capital Competitiveness: meet your buyers credit needs

15 Converting your A/R to cash…. With EDCs Accounts Receivable Insurance you have opened the door to discounting. EDC works with several financial institutions who will discount EDC Insured accounts receivable. Primary benefits: Instant cash (~ 48 hours). Reduces collection time and efforts. Discounting Your A/R

16 EDCs eProducts l allows an exporter to promptly determine their buyers credit profile before they close the deal (On-line insurability opinion and D&B Business Information Report). l an export can now insure a single transaction for up to 90% of their loss if a foreign buyer doesnt pay. EXPORTMarketInsight l Exporters can now monitor political and economic developments in key export markets around the world and receive alerts when changes occur in their countries of interest.

17 EXPORTCheck l What is EXPORTCheck? l Online credit card purchase of valuable buyer information (Insurability Opinion by EDC and/or a BIR from D&B) l Benefits l Know your buyers -- check them out before shipping to avoid credit risk surprises l Accessible and affordable -- Two key reports can be accessed quickly, and prices start at Cdn$60 l Broad market coverage -- A database of over 70 million buyers in over 100 markets worldwide l Quick access to EDC insurance -- We reserve cover for 10 days when the buyer is insurable for easy access to traditional ARI.

18 EXPORTProtect l What is EXPORTProtect? l Online purchase of single transaction coverage of up to US$250,000 in 25 markets l Benefits l Protection against non-payment -- Insure single transactions against non-payment l Secure, easy and fast -- The application process is easy and secure, and once you have applied, you know within seconds if EDC can put the cover in place l Broad market coverage -- Available in 25 key export markets

19 CANADA FOREIGN COUNTRY BUYER EXPORTER contract Guarantee Counter guarantee Collateral Working Capital SUPPLIER contract Working Capital

20 CANADA FOREIGN COUNTRY BUYER EXPORTER contract Letter of Guarantee Collateral SUPPLIER contract Working Capital Counter guarantee International Regulations Canadian Regulations NGOs IFOs Local Regulations

21 CANADA FOREIGN COUNTRY BUYER EXPORTER contract Guarantee Counter guarantee Joint-Venture SUPPLIER contract Working Capital

Mary L. Palmer EDCs Financial Services for Small- and Medium-Sized Businesses