There are many options available to a company that would like to obtain financing to engage in international business transactions. The following checklist is meant to provide a company’s decision maker with more information on the steps that need to be taken to thoroughly evaluate these options. Although each company has its own needs and goals, the process and information outlined in this checklist will provide a company’s decision maker with the framework in which to make an informed decision on the type and source of international financing that will provide the company the best means to reach its goals.
|International Finance Checklist|
|Identify financial needs|
|Determine type of finance desired|
|Determine if you want foreign or domestic issuer|
|Identify and choose sourse of financing|
|Conduct source due dilligence|
|Submit all required application information|
Conduct market research to be able to define and know the trends in the market. Evaluate customers’ needs to determine the growth potential and then identify reasonable goals.
Identify Financial Needs
Determine the financing amount and desired term that will be needed to achieve the company’s goals.
Options would include: share capital or equity share; preference shares; retained earnings; debentures/bonds of different types; loan from financial institutions, state financial corporation, or commercial banks; venture capital funding; asset securitization; and international.
Options would include: preference shares; debentures/bonds, public deposits/fixed deposits for duration of three years; loan from commercial banks, financial institutions, state financial corporation’s; lease financing; external commercial borrowings; euro-issues; and foreign currency bonds.
Options would include: trade credit, commercial banks, fixed deposits for a period of 1 year or less, advances received from customers, and various short-term provisions.
Determine Type of Finance Desired
Exchange a portion of the business ownership for financial investment. Options include: venture capital, equity offerings, and initial public offerings.
Borrow money from creditors who must be repaid with interest. Options include: banks and commercial lenders, commercial finance companies, and bonds.
Able to use another’s assets for the business. There would be an agreement between two parties that would outline the terms and conditions for rental use of tangible resources.
There are less SEC regulation requirements for a foreign issuer compared to a domestic issuer.
May file financial statements with US GAAP, IFRS or Local GAAP; no quarterly report required; can omit interim unaudited financial statements if effective less than nine months end fiscal year; and may be able to file confidentially.
Must file financial statements with US GAAP, file quarterly reports, and must file publicly.
Identify and Choose Source of Financing
Sources of Equity Financing Include:
Cash investment in exchange for shares in company. Capital comes from those in the business of financing, includes both companies or individuals. Usually invest in companies that are already profitable.
Stock sold directly from business to the public, an investor.
Initial Public Offerings (IPOs)
The company must be profitable with a strong demand for the companies’ products. A stable management is also very important.
International Finance Corporation (IFC)
To be eligible for funding, the company must be majority owned by the private sector. The IFC will not lend directly to small, medium, or individual enterprises but rather to financial intermediaries that then lend to the small business. Equity financing may not exceed 35% company’s share capital.
Sources of Debt Financing Include:
Banks and other Commercial Lenders
Lender will require a solid business plan, track record, and collateral. Borrower will usually need to show the lender that the business: has been profitable for at least 12 months, has a demonstrated need for transaction based financing, and is able to document that a viable transaction exists. These types of lenders may not have as much knowledge about export financing.
Option between domestic or foreign (World Bank) lender. Foreign loan options include: Eurocurrency Loans, Note Issuance Facility (NIF), and Development Banks.
Commercial Finance Companies
Commercial finance companies are a good option if a company is unable to get a loan from a bank or commercial lender. Through a commercial finance company, the lender will have repayment assurance as a result of a government guarantee of loan repayment from a conventional lender.
Domestic options may include:
- U.S. Export-Import (EXIM) Bank. Federal government agency that assists with the export financing of U.S. goods and services. EXIM Bank offers: working capital guarantees, export credit insurance, loan guarantees, and direct loans.
- Small Business Administration (SBA) services, such as: Export Working Capital Program. Provides up to $5 million in transaction specific, short-term, working capital to U.S. small businesses. This financing may be used as: pre-export financing of labor and materials; and post-shipment financing of the accounts receivable generated from transaction-specific overseas sales. Minnesota lenders* include:
- Bremer Bank National Association (1100 W St. Germain Street, Saint Cloud, MN 56301)
- Bremer Bank National Association (500 Willmar Avenue SE, Wilmar, MN 56201)
- Highland Bank (701 Central Avenue East, Saint Michael, MN 55376)
- Platinum Bank (7667 10th Street N, Oakdale, MN 55128)
- Signature Bank (9800 Bren Road East, Suite 200, Minnetonka, MN 55343)
- Venture Bank (4470 W 78th Street Circle, Suite 100, Bloomington, MN 55437)
- Export Express Loan Program. Provides up to $500,000 in financing for export development. The financing may be used for most business purposes: expansion, equipment purchases, working capital, inventory or real estate acquisitions. Minnesota lenders include:
- Bremer Bank National Association (633 S. Concord Street, South Saint Paul, MN 55075)
- First Farmers & Merchants National (122 S. Main Street, Le Sueur, MN 56058)
- Home State Bank (1435 E Hwy 12, Litchfield, MN 55355)
- MinnWest Bank Luverne (116 E. Main, Luverne, MN 56156)
- Platinum Bank (7667 10th Street North, Oakdale, MN 55128)
- International Trade Loan Program. Provides up to $5 million in financing for those in international trade. This loan may not be used as working capital but can be used to refinance indebtedness. Minnesota lenders include:
- Boarder State Bank (133 Main Street North, Greenbush, MN 56726)
- Bremer Bank National Association (500Willmar Avenue SE, Willmar, MN 56201)
- Overseeas Private Investment Corporation. Provides medium to long-term direct loan and loan guarantee funding. The businesses annual revenues must be below $400 million. The business must be have 25% or more U.S. citizen ownership.
Foreign options may include:
- International Finance Corporation (IFC). Lends to private sector and will not accept host government guarantees on its loans. Will loan up to 25% of estimated project costs for new project. If investment less than 25% of total capitalization may lend up to 50%. Loans have maturities up to 12 years, major convertible currencies, fixed or variable interest rates, pricing that reflects market conditions.
- Bonds. Used to raise financing for specific activity, no payment on principal due until the specified maturity date.
- International Bonds:
- Eurobond. Bond in a currency other than the borrower’s local currency. The country of the bond currency does not regulate the bond. Bonds may be held anonymously. (EX: US dollar bond sold to Japanese investors by US Company.)
- Foreign Bond. Bond issued by foreign borrower in host country market and currency. May have regulation requirements that govern foreign borrowers.
Conduct Source Due Diligence
Things to consider: charges for letters of credit, draft processing and payment collection; locations of bank branches including whether or not there are foreign branches; availability of buyer credit reports; experience with bank state and federal financing programs that support small businesses, and other bank services.
Submit All Required Application Information
Submit business plan. The venture fund may then perform due diligence on the business and look at management team, market, products, history, documents, and financial statements.
Process requires a loan application that includes: SBA loan application; personal background and financial statement; business financial statements (Profit and Loss (P&L) statement and projected financial statements); ownership and affiliations; business certificate/license; loan application history; income tax returns; resumes; business overview and history; and business lease.
Submit a proposal which includes information including: brief description of the project; sponsorship, management & technical assistance; market and sales; technical feasibility, manpower, raw material resources, and environment; investment requirements, project financing, and returns; government support and regulations; and timetable envisaged for project preparation and completion.
Coverage will usually include: losses for non-payment, currency inconvertibility, asset expropriation and political violence.
- The Express Insurance Program is a “named buyer” policy that has an online application that provides a policy quote and credit decisions up to $300,000 on foreign buyers within five workdays. If the request is more than $300,000 there will be additional processing time.
- The Small Business Export Credit Insurance Policy is ideal for small businesses that are just starting to export. Provides competitive credit terms that allows the seller to increase international sales.
- The Multi-Buyer Export Credit Insurance Policy insures export accounts receivable against default or non-payment thus reducing risk of selling on credit.
- The Short-Term Single-Buyer Export Credit Insurance Policy insures specific, short-term foreign receivables against loss due to commercial and specified political risks.
- Ex-Im Bank insures the stream of lease payments and fair market value of leased products.
*Minnesota Providers: Minnesota (Firscal year 2013, updated list may be found at: https://www.sba.gov/category/navigation-structure/export-lenders)