• Banking: Bank Financing of International Trade
  • October 2, 2007
  • Law Firm: Fowler White Boggs P.A. - Tampa Office
  • With the U.S. dollar now trading at lows to many other currencies, banks are receiving more loan requests from U.S. manufacturers to expand capacity for export orders. These companies often are unprepared for export sales. Banks should help companies incorporate basic precautions into their loan requests to prevent repayment problems.

     

    The best strategy for banks is to require that exporting customers get a substantial order deposit from offshore  buyers or a letter of credit guaranteeing payment if the order terms are met. Ideally, the letter should be guaranteed and confirmed by a U.S. bank. Often, however, the transaction’s size does not warrant the economic burden of securing a letter of credit. Then, the U.S. bank should at least require that its customers be paid upon  the exporter’s presentation of readily identifiable shipping, transaction and title documents upon shipment.

     

    Bankers also may receive loan requests if exporters need to cover lost revenue when an offshore customer refuses to pay or delays payment. While the customer’s domestic receivables may provide sufficient collateral, the preferable option is to require receipt of payment and the bank’s confirmation of deposit before shipping.

    Since such terms are not easy to obtain, banks should advise customers to prepare for a breach by including favorable dispute resolution provisions in the export contract, including the ability to sue in the United States. Then, after the exporter claims breach of contract, any orders not shipped to the defaulting foreign buyer may be  sold to repay the loan. A banker’s best policy, however, is to avoid such eventualities by advising customers on all financing options and related risks before they accept an export order.