New Global Markets and Growth at Home: The Right Partner Helps

International Trade

New Global Markets and Growth at Home: The Right Partner Helps

John A. McAdams

Medical equipment manufacturers may be wary of competing in the global marketplace during the current economic crisis, but the truth is that exports are more important than ever in these difficult times. In fact, companies should give serious consideration to exporting, which not only expands their customer base but also provides a stimulus to the U.S. economy.

Growth in the United States will be driven more by external demand than it has in the recent past. An added benefit is that according to statistics from the U.S. Commerce Department, export-related jobs, on average, pay better.

While many U.S. companies are being forced to lay off workers, others are maintaining or even adding jobs by exporting. Very often this process can be made easier if companies have the right partnerships in place, such as financing from the Export-Import Bank of the United States (Ex-Im Bank).

Ex-Im Bank is the official export-credit agency of the United States. An independent, self-sustaining federal agency, now in its 75th year, Ex-Im Bank helps create and maintain U.S. jobs by financing the sale of U.S. exports, primarily to emerging markets throughout the world.

The bank’s main financing tools are:

• Working capital guarantees to help U.S. small and medium-sized businesses build inventory to fill foreign orders

• Export credit insurance to protect U.S. exporters against nonpayment risks

• Guarantees of medium- and long-term commercial loans to ensure that U.S. exporters have competitive financing available for their exports.

The bank has a medical equipment initiative that offers enhanced financing terms to U.S. exporters to increase the sale of medical equipment to foreign borrowers.

Expanding Device Firms’ Markets

A number of companies have taken advantage of this program.

For example, Chindex International Inc., based in Bethesda, Md., is a leading supplier of U.S. medical equipment to Chinese hospitals and a long-time user of Ex-Im Bank working capital guarantees and loan guarantees. Currently, the company is using the eighth renewal of an Ex-Im Bank guarantee of a working capital loan from M&T Bank to support sales to China.

“The credit resources available from Ex-Im Bank have allowed Chindex to increase sales of U.S.-manufactured medical equipment to hospitals in China that otherwise would be limited to domestic alternatives,” said Judy Zakreski, Chindex vice president of U.S. operations. “This has improved healthcare in China and supported jobs in America. The Ex-Im Bank support also has allowed us to compete on a more level playing field with European and Japanese medical equipment manufacturers.”

Ex-Im Bank provides export financing products that fill gaps in trade financing to keep trade flowing to emerging markets. These products complement the efforts of commercial lenders who would be unable or unwilling to provide financing in these markets without Ex-Im Bank’s guarantees and insurance. The bank’s efforts also help to level the playing field for U.S. exporters by matching the financing that other governments provide to their exporters.

In fiscal year 2009, Ex-Im Bank authorized more than $21 billion in support of U.S. exports overall, the highest level in the organization’s 75-year history, to help ease tightened liquidity during the economic crisis. The bank also set a record for financing of small business exports at $4.36 billion in fiscal 2009.

Ex-Im Bank is legally mandated to find that a “reasonable assurance of repayment” exists for every transaction it authorizes. Yet, the bank also has positioned itself as a catalyst that helps pave the way in opening up and cultivating more difficult markets. The bank is active in about 90 countries and supports every kind of export—from capital goods associated with large infrastructure projects, to exports by thousands of small businesses, including consumer products and services.

U.S. exporters of medical equipment and services often have used Ex-Im Bank insurance and working capital guarantees, and one recent loan guarantee approved by the bank’s board of directors involved exports of medical equipment to a sub-Saharan African buyer. However, medical equipment companies’ use of the bank’s loan guarantee has been limited.

Bank officials hope the device industry in the United States will increase its use of this product. To that end, this column will focus on the loan guarantee and how it can help medical equipment exporters break into or expand activity in global markets. Future columns will discuss Ex-Im Bank’s insurance and working capital guarantee products in more detail.

Ex-Im Bank Guarantee

Ex-Im Bank’s guarantees of commercial loans are widely used to support larger exports such as capital goods. The guaranteed financing goes to credit-worthy international buyers in the private and public sectors, with terms generally up to 10 years; longer terms are available for special situations.

For example, a U.S. medical equipment firm might have a potential buyer in an emerging market that needs credit to carry out the purchase.

To satisfy the buyer’s need, the U.S. company can apply to Ex-Im Bank for a guarantee of financing from a commercial lender. With the financing, the U.S. firm wins the sale. Without the Ex-Im Bank guarantee, the lender would be unwilling or unable to provide the loan.

Applications for Ex-Im Bank support can be submitted by the lender, exporter or buyer. The majority of the transactions, however, are sponsored by the lender. The application is available at Ex-Im Bank’s Web site, www.exim.gov.

The interest rate charged is usually a floating rate, negotiated between the buyer and lender. In addition to these rates, Ex-Im Bank charges an exposure fee based on variables such as tenor, country risk and buyer credit risk.

The guaranteed loan also may support eligible transaction costs such as banking, legal and engineering fees, and limited costs incurred in the buyer’s country, such as local labor costs associated with the project or product installation. The guarantee also may support loans denominated in select foreign currencies, such as the European Union’s euro, the Japanese yen, Brazil’s reais and the South African rand.

Buyers may be foreign companies, governments and agencies. Em-Im Bank cannot do business in certain countries and under certain terms. The country limitation schedule is available online to see with the markets in which the bank is open and for what terms.

To qualify for Ex-Im Bank financing, all buyers must meet certain credit criteria to mitigate the risk.

Parnerships Are Key

Ex-Im Bank has many partners.

The bank works with delegated authority lenders. More than 150 commercial lenders have delegated authority to provide Ex-Im Bank-guaranteed working capital financing without prior approval from the bank. This greatly accelerates access to the financing. A list of these banks is on the bank’s Web site.

Insurance brokers that work with Ex-Im Bank also are listed online. They are able to help clients select the best Ex-Im Bank export credit insurance for their needs.

To get a list of U.S. Commerce Department Export Assistance Centers, go to www.export.gov or www.buyusa.gov, and click on “Find Local U.S. Office.” These centers can help companies through the beginning steps of learning the requirements of foreign markets and finding foreign buyers. Ex-Im Bank and U.S. Small Business Administration offices often are located together to provide one-stop shopping.

More than 50 Ex-Im Bank city-state partners around the country—including chambers of commerce, state trade offices, and universities—can walk local businesses through the process of finding foreign buyers and obtaining Ex-Im Bank financing.

Medical device firms interested in exporting products also should consider participating in one of the bank’s exporter training seminars that are held around the country and at Ex-Im Bank headquarters. A calendar of seminars is available online.

Author’s Note: To learn more about Ex-Im Bank financing products, visit www. exim.gov or contact the Bank at (800) 565-EXIM (3946) and select Option 2 to be transferred to the Ex-Im Bank regional officel. The regional offices can explain all the requirements to obtain Ex-Im Bank support. The Web site also provides information on Ex-Im Bank financing products, key transactions, export opportunities and available training.

John A. McAdams is senior vice president, export finance, for the Export-Import Bank of the United States, where he is responsible for all of the bank’s short-, medium- and long-term loan guarantee and insurance programs, including aircraft and project finance. Before his current role, McAdams served as senior vice president of credit and risk management, where he oversaw risk management including credit underwriting, credit review and compliance, country risk and economic analysis, and engineering and environmental analysis. He joined Ex-Im Bank from Bank of America, where he held a number of executive management positions in Washington, D.C., and Chicago, Ill.