Contents. Why is export finance needed? What types of export finance are available? Which currencies can be borrowed? How are risks managed?

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1 Contents Why is export finance needed? What types of export finance are available? Which currencies can be borrowed? How are risks managed? What terms of interest apply? Is state-supported financing a better option? Terms and conditions for state-supported financing When must the financing be repaid? What costs are associated with export finance? What can be financed? EKN s most common guarantees How is it done? Trade finance/customer finance What can SEK do for SMEs and middle sized exporters? Where can I find more information?

2 Why is export finance needed? There are numerous ways of being paid for an export transaction, such as standard invoicing, letters of credit, bills of exchange and export finance. The option chosen depends on various factors, including how well the seller knows the buyer, the size of the transaction and the period of credit required. Well-structured export finance is an important instrument providing companies with a competitive advantage.

3 What types of export finance are available? The various types of export finance can be roughly divided into two categories supplier s credit and buyer s credit. Supplier s credit involves an exporter granting its buyer a credit. In this scenario, the exporter has the credit on its books and assumes the risk of the buyer defaulting on its repayment obligations. An exporter may, however, decide to sell its claim in order to boost liquidity and eliminate risk. Buyer s credit is often used in larger transactions and can be arranged in two different ways. The first is to structure the transaction as a bank-to-buyer credit, whereby the exporter s bank signs a credit agreement directly with the buyer. The second way involves a bank-to-bank credit, whereby the exporter s bank signs a credit agreement with the buyer s bank, which in turn on-lends the money to the buyer. Banks and exporters can assign a claim to SEK or keep the claim on their own books and arrange refinancing with SEK.

4 Which currencies can be borrowed? Financing can be provided in a number of currencies, which can help reduce the currency exposure for both the buyer and the exporter. A credit can thus be offered in another currency than the currency of the commercial contract. If, for example, the commercial contract is denominated in Swedish krona and the buyer prefers a loan in USD, then the credit offered would be the USD equivalent of Swedish krona. This means that the exact amount of credit is determined in connection with each disbursement, while the exporter is paid out of the loan in Swedish krona. SEK can offer financing in a number of currencies. In certain cases financing can be provided in the currency of the buyer. The terms and conditions vary from case to case and the credit is arranged in close cooperation with the relevant bank and the exporter and buyer. Subsidiaries of Swedish companies can also borrow in the currency of the country where they are domiciled in order to reduce their interest and currency risks.

5 How are risks managed? There are different ways to mitigate the risk of buyer default. The most obvious way is for the exporter to trust the buyer s ability to pay and therefore assume the risk itself. An alternative way is for a guarantee to be issued by EKN ( Exportkreditnämnden, the Swedish Export Credits Guarantee Board). EKN is a government entity and the guarantee issued by it is an insurance policy covering the exporter against buyer default or the bank against borrower default. The EKN guarantee is considered by banks and financial institutions as a prime security. The guarantee therefore provides exporters not only with a hedge against buyer default, but also with an ability to facilitate financing (read more on page 12). Financing from SEK is often secured by EKN (or occasionally by corresponding institutions abroad), together with guarantee/s from one or more banks.

6 What terms of interest apply? SEK s terms of interest can be adapted to suit an individual financing scenario. Borrowers can simply choose the type of interest that best suits their financing. The options offered include: A fixed interest rate. The rate can be locked in for the entire tenor of the financing, including the disbursement period. A floating interest rate. A floating interest rate with an option to switch to a fixed interest rate at a later stage. A floating interest rate with a cap, thus mitigating a future increase in interest rates over the level of the cap.

7 Is state-supported financing a better option? SEK offers financing at both market and state-supported interest rates. The terms of the state-supported financing are based on the OECD Arrangement on Officially Supported Export Credits and can be used for the export of capital goods and where the repayment period is at least two years. Under the state-supported system SEK offers what are known as CIRRs (Commercial Interest Reference Rates) in a variety of currencies. For state-supported financing, SEK issues an offer free of charge for a CIRR rate. This rate is valid for 120 days and the commercial contract must be signed within this period. An offer of funding for supplier s credit must be accepted in connection with the signing of a commercial contract. Offers concerning buyer s credit allow for an additional six month period to conclude the credit agreement. Borrowers choose between a market rate and a state-supported rate when accepting SEK s offer and this depends on the applicable interest rates at that time. The choice of a CIRR rate is usually advantageous if interest rates for the applicable currency are increasing. For further details and the terms and benefits visit

8 Terms and conditions for state-supported financing A minimum of 15% of the value of the commercial contract to be paid as a down payment directly by the buyer to the exporter. Repayment is normally made in equal, semi-annual installments. The interest rate is fixed for the entire tenor of the financing. The length of the repayment period depends on the type of goods exported, the value of the commercial contract and the country to which the export is being made. However, the shortest repayment period is two years. An application must be filed with SEK prior to the signing of the commercial contract and before the goods are shipped. State-supported financing may be granted without a guarantee from EKN, but the requirements set by EKN for its guarantees must always be met. SEK must be informed of the date that the commercial contract is signed. SEK s offer must be accepted when the financing documents have been signed (the commercial contract in the case of supplier s credits or the credit agreement in the case of buyer s credits) and before any deliveries are made.

9 When must the financing be repaid? A distinction is made between short- and long-term financing. Repayment periods of up to two years are considered to be short-term financing and are usually documented by invoices or letters of credit. Repayment periods exceeding two years are considered to be long-term financing. Repayment is usually made through quarterly or semi-annual installments of equal amounts or, alternatively, by one bullet repayment. EKN s terms and conditions on repayments apply if the financing is covered by its guarantee. EKN-covered and/or state-supported financing must be repaid through semi-annual installments of equal amounts. The repayment profile can, in certain cases, be adjusted to reflect the cash flow of the investment made. The repayment period of state-supported and/or EKNguaranteed financing starts at a point in time decided by EKN and depends on the type of goods being exported. This starting point of repayment may be the date of the respective shipment of the goods or, if the exporter has a turn-key contract with the buyer, it may be the time when the goods are commissioned. Poorer countries may benefit from a repayment period of up to 10 years, while the repayment period is restricted to 5 years (or 8.5 years by permission) for wealthier countries.

10 What costs are associated with export finance? The interest is the sole cost for state-supported financing. In addition to the interest cost, financing at market rate carries a commitment fee calculated on the amount of undisbursed financing from the date that the terms of interest are set to the point when the last disbursement is made. SEK charges a risk fee for any part of the financing not covered by an EKN guarantee. A premium is also payable for the EKN guarantee, in addition to normal banking fees such as collection commission, risk fees and agency fees. For a state supported credit the bank acting as agent for SEK earns a margin of 0.25% as remuneration for its administrative duties.

11 What can be financed? Certain rules must be observed with regard to state-supported financing. Financing is allowed only for capital goods and a Swedish interest in the transaction is necessary. In practice this can mean that a product manufactured and assembled in Sweden may contain a large amount of imported components or that it is produced in a Swedish owned subsidiary abroad. A certain amount of non-swedish goods, included in the commercial contract, may be financed but if the Swedish portion amounts to less than 50% a substantial Swedish interest is necessary. Local costs up to 30% of the exported value are eligible, as well as 10-15% of the commercial contract value for spare parts. Items such as the EKN premium and interest during the construction period can also be financed under state-supported financing. The parts of the financing for an export transaction which are not eligible for state-supported finance, such as the down payment, may be financed on market terms.

12 EKN s most common guarantees Exporters and banks can insure themselves against the risk of non-payment. The premium is essentially based on the buyer s creditworthiness, the export s country of destination, the period of risk and the size of the commercial contract. Loss on Claim Guarantee provides protection against nonpayment by the buyer. There are different types of this guarantee, depending on whether the exporter or a bank has granted the loan and on the tenor of the financing. When the buyer demands a contractual guarantee the exporter s bank will issue such a guarantee. The issuing bank may share its risk relating to the exporter by applying for a Counter Guarantee. A bank may apply for a Letter of Credit Guarantee whereby EKN shares the risk for non-payment with the bank. A Bill of Exchange Guarantee protects the bank against non-payment of discounted bills of exchange. Risks under a working capital facility can be shared between the bank providing the facility and EKN by making use of the Working Capital Credit Guarantee. Further information is available at

13 How is it done? The key to a successful solution for an export transaction is for the financial issues to be raised as early as possible in the process. Applications for financing from SEK may either be made by exporters or their banks. The application form is available at SEK makes a credit decision and an offer is sent to the applicant within a few days. The offer may comprise both a fixed CIRR option and financing on market terms if the latter is more favorable at the time that the offer is accepted. The offer shall be accepted once the commercial contract and the finance documentation have been negotiated. The financing documentation is assigned to SEK. The terms and conditions for such assignment are governed by SEK s General Terms and Conditions for Export Credits or by SEK s Agreement on Assignment of Loans. SEK has such agreements in place with a large number of Swedish and international banks. Disbursements are made directly to the exporter in connection with shipments or other milestones as agreed in the commercial contract.

14 Trade finance/customer finance SEK is involved in trade finance by financing transactions arranged by banks or directly with exporters by discounting claims under invoices, bills of exchange or letters of credit, thus reducing exporters need for working capital. SEK issues contractual guarantees that guarantee the importer s payment in the event of non-performance by the exporter. Contractual guarantees may cover all obligations under a commercial contract, i.e. anything from repayment of a down payment to general performance. SEK offers customer finance programs for the customers of Swedish exporters. Financing of capital goods under such a program is made with a pledge on such capital goods. Close cooperation between the exporter and SEK under a program agreement results in a product in which SEK supplies the funding and takes the credit risk on the borrower, while the exporter s responsibilities include maintaining day-to-day contact with the end-user, repossession and the resale of goods. The exporter also has a limited guarantee obligation.

15 What can SEK do for SMEs and middle sized exporters? SEK has a business are targeting middle sized exporters. Our offering to this segment is the same as offered to large exporters. Financing for SMEs is made available through SEK s cooperation with the Swedish commercial banks, the Swedish savings banks and ALMI Företagspartner AB ( ALMI ). Contact us at [email protected] for more information.

16 Where can I find more information? Go to: Call: [email protected] Fax: Write to: AB Svensk Exportkredit Box 194, SE Stockholm, Sweden