Export Financing Programs

When it comes to business financing, most people automatically think of loans to buy equipment or lines of credit to help with marketing costs or hiring staff. However, when it comes to exports, the term "financing" takes on a broader scope and can include money loaned to foreign buyers for the purchase of your goods, leveraging your existing equity, or incentive programs that save you money by providing refunds on duty.

When exporting, you should decide how you want to be paid ahead of time as it will affect the type of financing you will need, what kind of insurance will be required, and how much working capital you will have available for day-to-day operations. For example, if you insist on cash in advance, you will not have to insure yourself against non-payment and you can use your money to take advantage of other business opportunities rather than having it tied up while you wait to get paid.

METHODS OF PAYMENT

The following are the main methods of payment for exporters:

1. Cash in advance: the most secure method of payment for you. However, most foreign buyers will not pay in advance unless it is a special order. You may get a portion of the money up-front and the rest upon delivery.

2. Letter of credit: a legal document between an importer and exporter that sets out the terms and conditions of payment. It acts as security for both parties, giving the exporter confidence that the importer is able to pay for the goods while assuring the importer that payment will be made to the exporter only after the terms outlined in the letter of credit have been met. This is the most common method of payment. There are many options available for the letter of credit. For more information, talk to someone in the international banking division at any of the major banks.

3. Open Account - the exporter ships the goods as soon as the order is received and then invoices the purchaser for payment within a certain amount of time (i.e. 30 days). Although it significantly cuts down the paperwork, it is very risky for export ventures as the seller is financing the venture and has no recourse if the buyer doesn’t pay. However, if you have a long term supplier who you trust implicitly, it can be a time-saving method of conducting business.

4. Documentary Collections - the exporter issues a bill of exchange (which is an unconditional request for payment on demand or at a specified time) and other documents which transfer ownership to the buyer. The exporter instructs their bank to transfer ownership upon full payment. The banks, in this case, act as intermediaries rather than guarantors. If payment is not made the document of title, usually the Bill of Lading, is held by the foreign buyer's bank until instructions for payment by the buyer are provided. This is riskier than the Letter of Credit as the banks will not guarantee a bill of exchange. Therefore, the exporter assumes responsibility for the shipment and risks non-payment.

Most banks have international divisions that can help new exporters decide which method of payment and financing will be best for their venture as well as what services are available to help them.

CONTRACT BONDS

Contract bonds are often required by foreign buyers as a form of security to ensure you will honour your contractual obligations. Bonds can either be issued by banks in the form of standby irrevocable letters of credit (ILC) or letters of guarantee or by surety companies in the form of contract surety bonds. Letters of guarantee are commonly used in global transactions while surety bonds are more commonly used in North America.

Foreign Exchange Facility Guarantee *

This program helps Canadian companies that purchase forward contracts free up working capital by guaranteeing the collateral and enabling them to lock in the exchange rate to protect against foreign currency fluctuations.

Performance Security Guarantee*

Covers 100 percent of losses incurred by your bank if a foreign customer makes a wrongful draw on a bonding instrument. This gives your bank the assurance it needs to issue letters of guarantee or standby letters of credit on your behalf and eliminates the need for you to put up additional working capital as collateral for bond posting.

Surety Bond Insurance*

This program gives surety companies reinsurance capacity of 100 percent, minimizing their risk which enables them to provide Canadian companies with the bonding support required to conduct business overseas.

* For more information on these programs, contact Export Development Canada --- Phone: 204-975-5090 or toll free 1-866-283-2957 --- Fax: 204-975-5094 --- Internet: Export Development Canada

LOAN PROGRAMS FOR CANADIAN EXPORTERS

Canadian Agriculture and Food International Program (CAFI)

This program provides matching funding for industry activities that enhance and promote Canada's reputation as the world leader in supplying safe, high-quality agriculture, agri-food, beverage and seafood. It is composed of two elements: Long Term International Strategies that gain recognition and facilitate long-term sustainable export success (generally three-to five year plans) and Short Term Projects which are typically one-time activities related to new-market constraints or growth opportunities.

For more information contact Agriculture and Agri-Food Canada --- Phone: 204-983-3032 --- Fax: 204-983-4583 --- E-mail: cafi-picaa@agr.gc.ca --- Internet: Canadian Agriculture and Food International.

CANtex - Canadian Textiles Program

For Canadian textile manufacturers, competitiveness is key to long-term success in today's global marketplace. CANtex consists of two components: a Productivity Component that assists textile manufacturing companies undertaking initiatives to improve their production efficiencies, and the Transformative Component for textile manufacturing companies wanting to transform at least a portion of their current textile production from lesser value-added products to higher value-added textile products targeted at growth niche markets.

For more information, contact the Service Industries and Consumer Products Branch (SICPB) - CANtex, Industry Canada --- Phone Toll-free: 1-888-268-0453 --- Fax: 613-954-3107 --- Internet: Canadian Textiles Program (CANtex).

Export Express Credit

Export Express Credit provides unsecured loans of up to $50 000 with flexible repayment terms of up to two years. The program is designed for Canadian exporting companies with annual sales of less than $5 million.

For more information, contact Export Development Canada --- Phone: Toll free 1-866-283-2957 --- Fax: 613-237-2690 ---TTY (hearing impaired): 1-866-574-0451 --- Internet: Export Express Credit

Industrial Cooperation Program (CIDA-INC)

This cost-sharing program provides a financial incentive (a cash contribution between $100 000 and $600 000) to Canadian companies to start a business or provide training in developing countries or countries in transition to a market economy.

For more information, contact the Canadian International Development Agency (CIDA) --- Phone: Toll free 1-800-230-6349 --- E-mail: info@acdi-cida.gc.ca --- Internet: Industrial Cooperation Program (CIDA-INC).

Innovation Financing

Offers up to $250,000 to help innovative businesses take advantage of new markets and new technologies. In some cases, financing may be used to reconstitute working capital depleted by capital expenditures or to finance sales growth.

For more information contact the Business Development Bank of Canada, --- Phone: 204-983-7900 or Toll Free 1-877-232-2269 --- Fax: 204-983-0870 --- Internet: BDC Financing.

Manitoba Agri-Ventures Initiatives (MAVI)

This program provides business planning and market development assistance with a focus on new and expanded uses for agricultural commodities. Funding is available specifically for the development of information for business plans, market plans, feasibility studies, new product development, new process development and market development. Government contribution is available on a cost-shared basis. The maximum available funding is $5,000 for individual ventures and $10,000 for organized commodity-based groups working to benefit their industry sector.

For more information contact Manitoba Agriculture, Food and Rural Initiatives, Agri-Ventures Section, Phone: 204-945-3498 or toll free 1-800-282-8069 --- Fax: 204-945-6134 --- Internet: Manitoba Agri-Ventures Initiatives.

Security Compliance Loan

This loan helps Canadian companies finance the security upgrades to property, personnel and procedures that may be required for them to meet the new Customs - Trade Partnership Against Terrorism security standards.

For more information, contact Export Development Canada (EDC) --- Phone: 204-975-5090 or toll free 1-866-283-2957 --- Fax: 204-975-5094 --- Internet: Security Compliance Loan.

Trade Assistance Programs

The Trade Assistance Program Show is designed to help Manitoba companies launch products in new markets outside the province by cost-sharing participation in a recognized trade show. This program will reimburse approved applicants for the cost of the trade show space, up to a maximum of $2,000. Space cost reimbursement cannot exceed 50% of the total costs of attending and exhibiting at the trade show.

The Trade Assistance Program Design and Website encourages Manitoba firms to develop new market opportunities outside the province by assisting with the costs of designing export quality promotional and sales materials. The assistance consists of 50% of the expense (to a maximum of $2,000) for an independent consultant to design promotional materials (i.e. brochures, packaging or labels) to be used in export markets. Design costs and translation expenses are both eligible. Assistance of 50% (to a maximum of $500) is available for an independent consultant to create a website. Eligible expenses include items such as layout, design, translation and/or photography. One upgrade of a company’s website will be allowed over a three-year period to a maximum of $500.

For more information contact Manitoba Trade and Investment --- Phone: 204-945-2466 or toll free in Canada and U.S.: 1-800-529-9981 --- E-mail: mbtrade@gov.mb.ca --- Internet: Trade Assistance Programs.

Trade Routes - Arts and Cultural Sector

The program provides assistance in export preparedness and international business development to small-and medium-sized enterprises.

For more information contact Canadian Heritage --- Phone: 204-983-3601 --- Fax: 204-984-6996 --- Internet: Canadian Heritage.

FINANCING FOR FOREIGN BUYERS OF CANADIAN GOODS AND SERVICES*

Export Development Canada (EDC) offers a number of financing programs to foreign buyers who purchase Canadian goods and services. This benefits Canadian exporters by giving them the ability to offer flexible financing and payment options to their foreign customers while allowing the Canadian exporter to secure cash sales as EDC assumes the risk of non-payment by foreign customers.

Corporate Loan Syndication

EDC structures and arranges Corporate Loan Syndications on behalf of Canadian and foreign companies, pulling together multiple banking partners to fund a borrower's large, medium-term capital requirements.
Participating financial institutions can also take advantage of EDC's Political Risk Insurance (PRI) for Banks on transactions in politically charged markets. This program allows borrowers to secure financing once rather than for each individual capital investment while facilitating new relationships between foreign borrowers and Canadian suppliers.

Foreign Buyer Financing

EDC offers a wide range of financing options to foreign buyers of Canadian capital goods and services either directly through EDC or through one of their partners. Funds can be loaned in any major currency and transactions of all sizes will be considered.

Leasing

This program helps Canadian companies and financial intermediaries structure and fund leasing instruments to support a Canadian company's business expansion goals. A variety of financial structures can be created to accommodate the leasing arrangement. EDC does not act as a lessor but can provide funding to lessors.

Lines of Credit

EDC provides lines of credit to foreign companies that intend to repeatedly purchase goods or services from Canadian companies and to foreign banks or intermediaries that lend money to the buyers of Canadian goods and services.

Project Finance

This program is designed to help structure complex, limited recourse financing transactions for large-scale global infrastructure and industrial projects that fall within one of three sectors - telecom, energy or diversified industries. EDC may act as an advisor, arranger, underwriter and/or direct lender.

*For more information on the above programs, contact Export Development Canada (EDC) --- Phone: 204-975-5090 or toll free 1-866-283-2957 --- Fax: 204-975-5094 --- Internet: Export Development Canada

EXPORT INSURANCE*

Insuring your exports not only protects your assets but can serve as security if you need to access working capital.

• Accounts Receivable Insurance - Offers coverage of up to 90% to Canadian businesses against non-payment by U.S. and foreign customers.

• Export Protect - Single transaction coverage to a maximum value of $250,000 (US) if your foreign customer doesn’t pay after they have accepted the goods.

• Contract Frustration Insurance (CFI) - Coverage of up to 90% on specific export contracts against a range of commercial and political risks such as buyer insolvency, cancellation of export licenses or permits, non-conversion of currency or inability to transfer funds, war or other political disturbance, and more.

• Political Risk Insurance - Protects overseas assets such as equipment and manufacturing facilities against political risks, covering up to 90 percent of losses.

• Single Buyer Insurance - This Insurance can be used to cover an unlimited number of sales, to the same customer for six months, on contracts worth up to $250,000.

* For information on any of the above programs, contact Export Development Canada (EDC) --- Phone: 204-975-5090 or toll free 1-866-283-2957 --- Fax: 204-975-5094 --- Internet: Export Development Canada

OTHER TYPES OF EXPORT FINANCING

Factoring

Although Export Development Canada does not directly buy or discount receivables (a process known as "factoring"), they do help Canadian companies establish factoring arrangements with financial institutions using the Accounts Receivable Insurance.

For more information, contact Export Development Canada (EDC) --- Phone: 204-975-5090 or toll free 1-866-283-2957 --- Fax: 204-975-5094 --- Internet: Export Development Canada

International Prime Contractor Service

A specialized sales and contracting service for exporters selling primarily to foreign governments. When Canadian exporters use the Canadian Commercial Corporation (CCC), the CCC acts as the prime contractor, thereby helping Canadian exporters close sales on the best possible terms and conditions, including waived performance bonds and advanced payment guarantees, in markets around the world.

For more information, contact the Canadian Commercial Corporation --- Phone: 613-992-1469 --- E-mail: info@ccc.ca --- Internet: Canadian Commercial Corporation.

Note Purchases

Foreign customers may issue promissory notes to Canadian companies as a means of payment for goods and services. Through this program, Export Development Canada purchases these promissory notes (with no requirement for security from the customers), thereby reducing the risk of non-payment and increasing the Canadian company’s access to cash.

For more information, contact Export Development Canada (EDC) --- Phone: 204-975-5090 or toll free 1-866-283-2957 --- Fax: 204-975-5094 --- Internet: Export Development Canada - EDC

Pre-Shipment Financing

This program encourages Canadian financial institutions to advance pre-shipment loans to Canadian exporters who need working capital to fund the up-front costs associated with an export contract (i.e. manufacturing goods prior to exporting) by covering up to 75 percent of the loan value. This helps companies free up existing lines of operating capital for new business development.

For more information, contact Export Development Canada (EDC) --- Phone: 204-975-5090 or toll free 1-866-283-2957 --- Fax: 204-975-5094 --- Internet: Export Development Canada

TRADE INCENTIVE PROGRAMS

Trade incentive programs keep Canadian companies competitive by giving them, under certain circumstances, duties relief on imported goods that may be used to produce goods for future export. The Canada Border Services Agency (CBSA) has a variety of programs that allow them to waive (relief), postpone (defer) or refund (drawback) some or all of the duties and taxes payable when importing goods.

Canadian Goods Abroad Program

This program allows duties relief on the Canadian export value of goods when they are returned to Canada after being exported for repairs, equipment additions or work done abroad.

Duty Deferral Program - Duties Relief

The Duties Relief Program may relieve you from having to pay duties on imported goods if you will eventually re-export those goods, either in the same condition or after using, consuming or expending them to process other goods.

Duty Deferral Program - Duty Drawbacks

If you are the importer, exporter, processor, owner or producer of goods that were imported and (a) further processed (b) displayed or demonstrated in Canada (c) used for the development or production in Canada of goods for subsequent export, or (d) exported without having been used in Canada for any purpose other than for (a), (b), or(c), you may apply for a drawback of the duties paid on the imported goods. These could be customs duties, anti-dumping and countervailing duties, or excise taxes (other than the Goods and Services Tax) that were paid at the time of importation.

For more information on the above programs, contact Canada Border Services Agency (CBSA) at 1-800-461-9999 or visit the website at: Canada Border Services Agency - CBSA.

• Checklist for New Exporters
• Export Information Sources
• E-Exporting

DISCLAIMER
Information contained in this document is of a general nature only and is not intended to constitute advice for any specific fact situation. Users concerned about the reliability of the information should consult directly with the source, or seek legal counsel.

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