An Export Credit Agency is a government department that is in place to help the exporters located in their country. The agency does this by providing guarantees to funders for a particular project. Because the funder now has the formal support of the agency, the transaction becomes lower risk and more banks are interested in the transaction. With this lower risk and more competition, the interest rate that is charged for the loan is less than without the guarantee from the agency. To cover the cost of the risk and to pay for the operational cost of the agency, a fee is charged at the time of the first funding of the transaction. The fee depends on the risks being taken by the agency and key factors include the term, the credit strength of the business and the country where the exports are going. This fee can be borrowed and repaid throughout the term of the loan.

By supporting the exporters in their own country, Export Credit Agencies help to maintain jobs and the economy grows as more exports can be achieved. In the vast majority of cases, the fees collected by the agencies outweigh the operational costs so they not only support the exporters but it costs nothing to the taxpayers.

Recently, there has been a greater focus on assets under US$25 million for export credit financing. AF Capital has been a significant funder of these transactions

Export credit financing is very similar to commercial financing. In commercial financing, borrowers and the bank’s relationship manager agree on the terms of a transaction that the relationship manager will take to the credit committee. The relationship management team will do their due diligence and write a credit paper. The transaction is submitted to the credit committee who will likely come back with more questions. Once those have been answered, the borrower will get approval on the terms approved by committee and documentation will begin before delivery and funding to the manufacturer.

Export credit financing works in exactly the same way with the Export Credit Agency as the credit committee. From the perspective of the buyer, the process is very similar.

The difference is that a commercial bank will charge an interest rate directly in line with the risks of the transaction whereas AF Capital charges an interest rate in line with the risk of the country of the Export Credit Agency. This will be substantially lower than the commercial risk. To counterbalance that, the Export Credit Agency will charge a fee for the risk it is taking. Your AF Capital team will help borrowers assess the relative merits of the funding we offer versus commercial terms available.

Export credit financing is highly beneficial because it is often available in countries where banks are not interested in lending. Using an Export Credit Agency financing doesn’t use up credit limits with banks for borrowers. It is stand alone financing for your equipment which does not require additional banking relationships or requirements.

Working with AF Capital is easy and is broken down into five stages.

Stage 1 : Agreement of Terms – Once a buyer has agreed with the manufacturer the terms of the purchase agreement, AF Capital is prepared to issue an indicative termsheet. This will include all the key economic terms of the financing transaction. For this stage of the process, the Export Credit Agency is not involved and the borrower is working one-on-one with the AF Capital team member.

Stage 2 : Due Diligence – A due diligence visit is likely to be needed and borrowers will need to provide detailed credit and “know your customer” information including:

1) Three years of audited financial information

2) Latest management accounts

3) Organization charts

4) Passport copies and home addresses of key individuals

5) Projections

6) Information about the proposed operation and maintenance of the goods being purchased

7) Company formation documents

8) Company presentation with background and history

After this stage is completed, AF Capital will be able to give an assessment of whether the transaction is likely to gain approval by the Export Credit Agency. Given the experience and close working relationships with the various Export Credit Agencies, we are very confident in the opinions we provide at this stage.

Stage 3 : Application and Approval – AF Capital will apply to the Export Credit Agency on behalf of the borrower. It is likely that some more questions will arise. After that, the transaction gets approval from the Export Credit Agency.

Stage 4 : Documentation and Funding – Once the terms have been approved AF Capital recommends lawyers that can be instructed and can start the documentation of the transaction. AF Capital will remain key to the process during this phase ensuring that all elements of the approval are satisfied and that the borrower understands what is contained within the documentation.

Stage 5 : Post Funding – AF Capital will invoice on the agreed terms and will collect annually required documents like insurance and audited financial statements. The AF Capital professional will remain close to the borrower to discuss any future needs in aviation or, with our sister brand, AF Capital, any other financing needs the customer may have.