industry information > communications > hot topics > The Export Credits Guarantee Department (ECGD) > Support provided to banks working on behalf of exporters

Key features:

Buyer Credit Under a Buyer Credit a bank enters into a loan agreement with an overseas borrower in order to finance the purchase of goods or services from an exporter. In order to enable the bank to make that loan, ECGD gives a guarantee to the bank in respect of the borrower's repayment obligations. The exporter is then able to claim disbursements from the loan as and when amounts fall due for payment under the terms of its contract. The contract remains on cash terms. Under ?complex? Buyer Credit ECGD also provides insurance to the exporter in the event the contract is terminated prior to delivery.

Supplier Credit Facility (SCF)
Where a buyer requires credit terms of at least two years for an export contract, an SCF Facility allows the exporter to include the deferred payment terms in its contract and to pass the payment risk to its bank in respect of the credit portion. It also allows the exporter to receive cash from the bank upon shipment of the goods or for work done under the contract. ECGD's support is in the form of a guarantee to the bank, under which ECGD guarantees payment to the bank of the finance it has made available, if the buyer defaults on the credit repayments.

Project Finance
Where an exporter is involved in a major project overseas, ECGD may give its support to project financing arrangements under which the banks providing finance rely primarily upon the revenues of the project for repayment. Like a Buyer Credit ECGD's support takes the form of a guarantee to the lending banks in respect of a loan, which they have made to the project company. Amounts are disbursed to the exporter from this loan as and when amounts fall due for payment under its contract with the project company. This form of support will usually only be suitable for major projects with a value typically in excess of 50 million pounds.

Extent of cover
Lending banks receive a guarantee from ECGD that says, in effect, ?if the borrower does not pay you, we will', irrespective of the specific cause of loss. If ECGD pay a claim to the bank where the borrower is not paying because the exporter has failed fully to perform the contract then ECGD can, within limits, recover the claim from the exporter.

Benefits:

• The ability for exporters to offer customers deferred payments while continuing to enjoy a cashflow reflecting cash payment terms
• A wide choice for exporters of UK based banks who are experienced in providing ECGD backed facilities
• Competitive financing terms for exporters' customers, based on the UK Government credit quality represented by ECGD's guarantee.