EXIM TEMPORARILY EXPANDS WORKING CAPITAL GUARANTEE PROGRAM
Updated: Apr 9, 2020
Background on the Working Capital Guarantee Program
EXIM’s Working Capital Guarantee Program (WCGP) facilitates loans from commercial lenders to creditworthy U.S. businesses that export over the term of the loan. It is an asset-based lending program where the amount the borrower/exporter can borrow is determined by availability on a borrowing base. Borrowing base availability is calculated based on export-related inventory and accounts receivable based on formula advance rates.
WCGP is a conditional product where the Guaranteed Lender must demonstrate compliance with certain requirements mostly related to the asset-based lending structure. The WCGP covers 90 percent of the principal and accrued interest on a Working Capital Loan Facility (WCLF), and carries the full faith and credit of the U.S. Government. The WCGP primarily helps small and medium-sized businesses that have the potential to export but lack sufficient funds to support export efforts.
The vast majority of the guarantee authorizations issued under the WCGP are done through Delegated Authority (DA) lenders. These lenders have authority given by EXIM to close loan facilities with our guarantee without prior EXIM consent. These lenders have DA at various levels up to $10 million.
Need to Broaden EXIM Working Capital Guarantee Program
The program was implemented by EXIM in the 1980s and is currently an active program with 49 active DA Lenders. Recently, interest in the program has increased due to EXIM’s seven-year reauthorization and EXIM expects that interest from lenders to continue.
EXIM has engaged in numerous discussions with all DA lenders Each expressed the need for working capital financing support given the significant and growing liquidity pressure on suppliers and exporters.
Based on these conversations, EXIM will temporarily modify the WCGP to make it more flexible for borrowers. The following modifications to the WCGP should make it substantially more accessible to the exporter community considering recent economic stresses. The recommended modifications are as follows:
Temporarily expand the definition of eligible inventory from only export-related inventory to all inventory that could potentially be exported. This will expand the borrowing availability for U.S. exporters that use an EXIM guaranteed loan facility. The exporter will make a representation on the monthly borrowing base certificate provided to the lender that the inventory they are borrowing against could be exported. This will also be verified by periodic field audits that are conducted as part of program compliance.
Expedite the implementation of a revised Working Capital Guarantee fee structure. The fee schedule will be revised and distributed to the lenders.
In addition to the points above, lenders have strongly recommend increasing the EXIM guarantee from 90 percent to 100 percent, given that risk aversion is acutely high in the lending sector at this time. We are told that increasing the guarantee coverage to 100 percent temporarily will enable the banks to engage faster and more fully. EXIM has not made a final decision on this suggestion, but we are considering it, along with a potential fee increase, to cover this additional risk assumption by EXIM.
This measure will take effect and be available immediately, subject to the final determination of policies and procedures, as applicable, and will remain in place through April 30, 2021.
By modifying the WCGP in the manner set forth above, EXIM will:
Increase access to capital for U.S. exporters by expanding their available borrowing base;
Entice lenders to make more loans to U.S. exporters by reducing their credit risk; and
Make the program more affordable for U.S. exporters.