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We understand that for commodities buyers in many markets, securing
extended payment terms can greatly improve your ability to purchase the
commodities you require.
Mex-Ex can meet your needs to buy on credit by offering you extended
payment terms as part of an integrated purchasing solution.
With our financing program you can:
 Obtain 100% financing,
and avoid paying out cash in advance.
Match repayments to
your projected revenues, allowing for grace periods.
Pay interest on a fixed
rate basis for the life of the credit, which will make budgeting simpler
and safer.
Access short, medium or
long term financing which may be prohibitively expensive or completely
unavailable locally in your country.
If you require such assistance, we can meet your needs.
Contact us for more information.
Additionally in many countries, U.S. Department of Agriculture (USDA) export credit
guarantee programs can help make commercial financing available for
imports of U.S. food and agricultural products on deferred payment
terms. The GSM-102 and GSM-103 programs guarantee payment from
approved foreign banks, normally to financial institutions in the
United States that extend credit to them to finance imports of U.S.
agricultural commodities. The reduction of risk to financial
institutions in the United States may be reflected in lower interest
rates and lower financing fees than would be the case without a USDA
guarantee, or may make possible financing that would otherwise be
unavailable.
Please select:
1. Frequently Asked Question about GSM 102 & 103
programs
2. Steps to Participating in USDA Financing Programs
Frequently Asked Questions
This overview provides answers to commonly asked questions about
how to participate in the GSM-102 and GSM-103 export credit guarantee
programs. The guide at the bottom outlines
the basic steps for participating in these programs.
| Q. |
What are
these programs?
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USDA
operates two export credit guarantee programs that guarantee
payments from foreign banks. The GSM-102 Export Credit
Guarantee Program provides coverage for credit periods not to
exceed 3 years; the GSM-103 Intermediate Export Credit
Guarantee Program covers periods of more than 3 years, but not
more than 10 years. Sales under these programs are
commercially financed; they are not food aid or subsidy
programs.
Under both programs, USDA's Commodity Credit Corporation (CCC)
underwrites credit extended by eligible financial institutions
in the United States to approved foreign banks that issue
dollar-denominated irrevocable letters of credit in favor of
U.S. exporters as a means of payment for imported U.S.
agricultural commodities. These letters of credit are opened
on the instructions of the importer. Importers negotiate their
own credit terms, if any, from their local banks to permit
them to make deferred payments for the imported commodities
and products. If the importer's bank fails to make payment for
any reason, the financial institution in the United States may
file a claim with the CCC for amounts due and covered by the
guarantee. The CCC will pay the claim and seek to collect the
full overdue amount from the foreign bank.
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| Q. |
What
products are covered?
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USDA will
consider announcing, for a specific country or region, the
availability of guarantees for any U.S. agricultural commodity,
if the market for U.S. exports will be expanded or maintained as
a result. In general, agricultural commodities must be food,
feed, fiber, or products thereof. Forest products, such as
lumber and pulp, and also fish, which the U.S. Congress has
defined as an agricultural commodity for the purposes of these
programs, can be covered. Coverage has encompassed such diverse
products as cotton, vegetable oil, breeding chicks, and
telephone poles. The GSM-103 program is focused on a more
limited number of products, such as wheat and breeder livestock.
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| Q. |
Are any
products excluded from coverage?
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All products
must meet the U.S. origin requirements of applicable law as
stated in GSM-102/103 regulations, notices, and program
announcements. Manufactured agricultural inputs, such as
pesticides, fertilizers, and equipment, are not eligible.
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| Q. |
Are there
any other program restrictions?
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All guarantee
applications are subject to review by the CCC to determine that
coverage is based on a price within a prevailing market range.
Normally, eligible transactions are restricted to those where a
bank in the same country as the importer issues the letter of
credit. However, USDA may announce guarantee allocations for
sales to a number of countries in a specific region where not
all of those countries have banks approved for participation by
the CCC. Exports to such countries may be covered if the
importer is able to arrange letters of credit through approved
banks in other countries in the region. Participants should read
program announcements carefully to ensure they are aware of
specific provisions or restrictions for specific countries.
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| Q. |
How does
an importer become eligible to participate in these programs?
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The CCC does
not decide on importer eligibility. Any buyer located in a GSM
program country may enter into a sales contract with an eligible
U.S. exporter and work with a CCC-approved foreign bank to
arrange for the letter of credit required for CCC coverage.
Importers in some countries may be constrained by their own
government's rules and regulations concerning the importation of
certain products or the ability to set up the letter of credit
as required by the CCC.
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| Q. |
What is
covered by a guarantee?
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The CCC
guarantee typically covers 98 percent of the port value of the
export item, determined at the U.S. point of export, plus a
portion of interest on the financing. Guarantee coverage is
usually limited to credit extended for the value of the
commodity only, even though the sale may have been made on a
cost and freight or cost, insurance, and freight basis. Under
unusual circumstances, however, the CCC may offer coverage on
credit extended for freight costs.
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| Q. |
How does
an importer find out which banks can participate?
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CCC
announcements of new coverage may include the names of approved
banks. This is typically the case when there are only one or
two. If numerous banks are approved, announcements usually do
not name specific banks, but simply refer to "any bank in
(the country or region) approved by the CCC." Banks that
have been approved are notified of the maximum outstanding
amount the CCC is willing to guarantee for that bank. For
assistance in seeking the names of approved banks, contact the
U.S. agricultural counselor or attaché in the importing
country, or the commercial or economic counselor at U.S.
Embassies in countries where USDA does not have a resident
agricultural counselor or attaché.
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| Q. |
How is
financing arranged?
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An eligible
bank for the importer's country or region establishes a credit
line with an eligible financial institution in the United
States, the terms of which can be made consistent with terms of
coverage announced by the CCC for the importing country. The
importer negotiates an agreement with the eligible bank to issue
a letter of credit and finance the import transaction on credit
terms to be guaranteed by the CCC. The U.S. exporter, informed
of these arrangements, can then apply for the guarantee.
Importers should keep in mind that the CCC guarantee covers only
the financing arrangements extended to the foreign bank.
Extension of credit by the financial institution in the United
States to the foreign bank does not mean that the importer will
receive credit benefits from the foreign bank. Credit (perhaps
in local currency) extended to the importer by the foreign bank
is strictly a matter for negotiation between the importer and
that bank.
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| Q. |
What
paperwork is required?
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Most of the
technical details concerning the guarantee will be handled by
the U.S. exporter, the financial institution in the United
States, and the foreign bank. For the importer, the transaction
is similar to other commercial purchases involving letters of
credit.
For a U.S. exporter to arrange for a transaction to be backed by
a CCC guarantee, a CCC-approved foreign bank chosen by the
importer must issue an irrevocable letter of credit in favor of
the U.S. exporter covering payment for the commodity in U.S.
dollars. The letter of credit, the related sales contract, and
the deferred payment (credit) arrangements between the issuing
bank and the financial institution in the United States will
specify documentary requirements agreed to by each of the
parties. Fulfilling certain CCC documentary requirements is the
responsibility of the U.S. exporter, who will advise which
documents, if any, may be necessary for the importer to provide.
If the guarantee is assigned to a financial institution in the
United States, that institution may have documentary
requirements as well, but these should not affect the importer.
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| Q. |
Why is a
letter of credit necessary?
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A letter of
credit is a well-established commercial instrument used to
effect payment for all sorts of transactions. It remains an
effective means to ensure that documentation of the transaction
is available should it be needed by the CCC. Issuing an
irrevocable letter of credit also causes the foreign bank to
assess the importer's financial capabilities.
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| Q. |
If private
financial institutions in the United States are financing
shipments under letters of credit, why is a CCC guarantee
necessary?
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If financial
institutions in the United States are financing exports under
letters of credit, then a guarantee is not necessary. However, a
CCC guarantee can encourage extension of credit in cases where
financial institutions might otherwise be unwilling to finance
exports on credit terms. The guarantee may also facilitate
credit to foreign banks in larger amounts and on more favorable
commercial terms than would otherwise be available.
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| Q. |
What are
the costs of using these programs?
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Costs to the
importer can vary depending on the country in which the
transaction is conducted and the particular arrangements
negotiated between the parties. Normally, at a minimum, the
importer can expect to pay fees for opening the letter of credit
and other local bank charges related to the transaction, as well
as principal plus interest, and other costs related to any
credit extended by the local bank. The U.S. exporter pays a fee
to the CCC, in advance, to obtain each guarantee. For GSM-102
guarantees, fee rates are less than 1 percent of the value of
the sale. Fees are higher for the longer credit periods of
GSM-103. Exact fees are based on announced CCC fee rate
schedules.
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| Q. |
How is the
interest rate determined?
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The financial
institutions in the United States and the approved banks opening
the letters of credit negotiate their own terms. Usually, the
interest rate is linked to the U.S. prime rate or the London
Interbank Offered Rate (LIBOR) on a floating (periodically
adjusted) basis.
Interest rates on any credit extended to the importer by the
local bank are a matter for the importer's negotiation with that
bank.
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| Q. |
How is the
interest paid?
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Interest and
principal are usually paid by routine bank transfers to the
financial institution in the United States that finances the
transaction. Payments are made at rates and intervals defined in
the letter of credit or the related financing agreement between
the financial institution in the United States and the issuing
bank. The CCC requires that total accrued interest be paid no
later than each principal due date, with principal payable at
least annually. Agreed terms may call for interest payments at
more frequent intervals than principal.
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| Q. |
Can the
importer make early payments?
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Possibly.
This will depend on the importer's credit arrangements with the
local bank; these arrangements are not governed by CCC rules.
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| Q. |
If the
importer repays early, can some of the charges be eliminated?
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That depends
on whatever credit arrangements the importer may have with the
local bank. In any event, early repayment would probably not
eliminate a number of costs, such as fees already paid for the
letter of credit, documentation, and foreign exchange
conversion. Also, the CCC fee for guarantee coverage would have
been calculated and prepaid based on the original credit period,
and would not ordinarily be refundable to the exporter.
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| Q. |
Does the
importer need to report the arrival of the product?
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Possibly. The
U.S. exporter will need documentation showing that the product
entered the country or region of destination. The U.S. exporter
is responsible for obtaining this documentation. Importing
country rules governing imports may determine whether the
information comes from the importer, the importer's bank, the
importing country's government, or some other source.
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| Q. |
How can an
importer find out if credit guarantees are available or request
coverage for a commodity not already included in these programs?
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Contact the
U.S. agricultural counselor or attaché at the U.S. Embassy. In
countries where USDA does not have a resident agricultural
counselor or attaché, contact the commercial or economic
counselor, or write to USDA at the address provided on the back
cover of this pamphlet.
Program requests should specify importing country, commodity,
quantity, estimated value, shipping period, credit period
desired, and, if available, the name of the foreign bank willing
to issue the letter of credit.
Requests should be submitted as soon as possible, keeping in
mind that these programs operate on a U.S. fiscal year (October
1 - September 30) basis. Sales against coverage for a given
fiscal year usually must be registered by exporters no later
than September 30, although the contractual arrangements between
buyer and seller may permit export as late as November 30. The
CCC's approval of a guarantee allocation is based on review of
the economic and financial situation in the importer's country
or region, the market potential for U.S. agricultural products,
the existence of creditworthy foreign banks approved by the CCC
to open letters of credit, and the availability of coverage
within overall program levels.
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Steps to Participating in the GSM-102/103
U.S. Export Credit Guarantee Programs
The following is a list of steps for importers to make use of CCC
export credit guarantee programs. These steps should not be considered
as occurring in a specific chronological order; some steps may come
earlier or later than indicated below:
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