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Two Options for Export Credit Financing
Several US agencies provide export finance support for exporters of agricultural and food products. The level of coverage and degree of difficulty in obtaining approval are the primary differences. Each program offers benefits.
Ex-IM Bank has created a special program that empowers over 1,100 U.S. small business exporters with the resources to offer the most attractive financing possible to their foreign customers. The ability to offer financing or credit terms is often the most critical factor in increasing export sales. Foreign buyers often expect the U.S. supplier to offer "open account" or unsecured extended payment terms rather than pay by letters of credit, which can be very expensive, or cash in advance. This is especially critical now given the worldwide credit crunch.
Short-term interest rates are quite high in many foreign markets so the ability to offer customers U.S. dollar credit in interest rates of single digits can mean a dramatic increase in sales to these customers. These customers are now in a position to pass on this attractive credit to their customers to increase sales. Our foreign competition has long made offering extended open account payment terms standard practice. Now with Ex-IM Bank's Small Business Insurance Program, American small business exporters can meet this competition.
Using Ex-IM Bank's Insurance Program to offer open account payment terms will often be the most attractive payment option for foreign customers. Ex-IM Bank's Insurance Program protects the exporters against payment default by foreign buyers. Ex-IM Bank will pay 95% of the credit if the buyer cannot pay for commercial reasons, such as buyer bankruptcy and 100% if they cannot pay for political reasons, such as the outbreak of war.
With the U.S. government insuring foreign sales receivables, small business exporters can easily assign these receivables to an U.S. commercial bank and get paid immediately upon shipment. With Ex-IM Bank's Insurance, banks typically charge interest rates ranging from 1.5%-2.5% over the London Interbank Offered Rate which is the U.S. commercial banks' cost of funds. The "LIBOR" is currently 5.00% so the financing that you can offer the customer is in the range of 6.50%- 7.50%. Compare these rates to those in Mexico and Brazil where interest rates range from 30-40% and it becomes clear why the Insurance Program is so attractive.
The cost of the Insurance Program is based solely on the actual value of shipments to foreign customers. The cost, or premium, depends on the amount of the credit, the term of the credit, and the type of buyer. For example, the premium for a 90-day credit for a foreign company is 0.94% or $940 on a $100,000 order. This premium is commonly added to the buyer's invoice. It is important to note that Ex-IM Bank has no minimum transaction size.
The U.S. Department of Agriculture administers export credit guarantee programs for commercial financing of U.S. agricultural exports. These USDA Commodity Credit Corporation (CCC) programs encourage exports to buyers in countries where credit is necessary to maintain or increase U.S. sales, but where financing may not be available without such credit guarantees.
Two programs underwrite credit extended by the private banking sector in the United States (or, less commonly, by the U.S. exporter) to approved foreign banks using dollar-denominated, irrevocable letters of credit to pay for food and agricultural products sold to foreign buyers. The Export Credit Guarantee Program (GSM-102) covers credit terms up to three years. The Intermediate Export Credit Guarantee Program (GSM-103) covers longer credit terms up to 10 years.
Under these programs, which are administered by the Foreign Agricultural Service (FAS), the CCC does not provide financing, but guarantees payments due from foreign banks. Typically, 98 percent of principal and a portion of interest at an adjustable rate are covered.
Because payment is guaranteed, financial institutions in the United States can offer competitive credit terms to the foreign banks, usually with interest rates based on the London Inter-Bank Offered Rate (LIBOR). Any follow-on credit arrangements between the foreign bank and the importer are negotiated separately and are not covered by the CCC guarantee.
Program announcements provide information on specific country and commodity allocations, length of credit period, and other program information and requirements.
Eligible Countries or Regions: Interested parties, including U.S. exporters, foreign buyers, and banks, may request that the CCC establish a GSM-102 or GSM-103 program for a country or region. Prior to announcing the availability of guarantees, the CCC evaluates the ability of each country and foreign bank to service CCC-guaranteed debt. New banks may be added or levels of approval for others increased or decreased, as information becomes available.
Eligible Commodities: The CCC selects agricultural commodities and products according to market potential.
Participation: The CCC must qualify exporters for participation before accepting guarantee applications. An exporter must have a business office in the United States and must not be debarred or suspended from participating in any U.S. government program. Financial institutions must also meet established criteria and be approved by the CCC. The CCC sets limits and advises each approved foreign bank on the maximum outstanding amount the CCC can guarantee for that bank.
The exporter negotiates the terms of the export credit sale with the importer. If the exporter anticipates being paid at the time of shipment, the exporter and importer must work closely during negotiations with the eligible U.S. financial institution and the eligible foreign bank. This will help ensure that arrangements are firmly in place for the U.S. financial institution to pay the exporter and to extend credit to the foreign bank.
Once a firm sale exists, the qualified U.S. exporter must apply for a payment guarantee before the date of export. The exporter pays a fee calculated on the dollar amount guaranteed, based on a schedule of rates applicable to different credit periods.
Financing: The CCC-approved foreign bank issues a dollar-denominated, irrevocable letter of credit in favor of the U.S. exporter, ordinarily advised or confirmed by the financial institution in the United States agreeing to extend credit to the foreign bank. The U.S. exporter may negotiate an arrangement to be paid as exports occur by assigning to the U.S. financial institution the right to proceeds that may become payable under the guarantee, and later presenting required documents to that financial institution. Such documents normally include a copy of the export report, which also must be submitted to the CCC.
Additional Information: If you wish to participate in the GSM-102 or GSM-103 programs, call (202) 720-3224 or send a fax to (202) 720-2949 to request program regulations and applicable notices and announcements.
Bank One Corporation, Denver N.A.
Margie Florentin, Vice President
1125 17th Street
Denver, CO 80202
Tel: (303) 244-3140
Fax: (303) 244-5908
Services Provided: Full electronic treasury management, payment and trade services, structured trade, risk mitigation, foreign exchange and traditional payment, and letter of credit services.
Steve Ghadaifchian, VP-International Banking Specialist
10660 East Colfax Avenue
Aurora, CO 80010
Tel: (303) 365-3622
Fax: (303) 365-3601
Services Provided: Specializing in meeting the needs of growing businesses through collection of receivables, and correspondence for letters of credit.
First National Bank
Greg R. Vartanyan, Executive VP
555 17th St., Ste. 3400
Denver, CO 80202
Tel: (303) 308-3864
Fax: (303) 308-3861
Services Provided: Document collections, international drafts and wires, letters of credit, cash letter services, trade finance, forward and option contracts, transborder banking and document preparation.
KeyBank - Global Trade Services Group
601 108th Ave. NE, 3rd Floor
Bellevue, WA 98004
Tel: (425) 709-4328
Fax: (425) 709-4334
Services Provided: Market and consumer intelligence, identifying trade risks, offer pre- and post- export financing, expedite import and export payment transactions, and more.
NaviTrade Structured Finance
2715 W. 119th Ave.
Westminster, CO 80234
Tel: (303) 652-2400
Fax: (303) 632-2690
Services Provided: Working closely with Rocky Mountain Region companies to help them better manage and execute their international and domestic transactions.
Kenneth So, President
1630 Stout St.
Denver, CO 80202
Tel: (303) 632-8888
Fax: (303) 623-8505
Services Provided: Pre- and post-export, SBA Export Working Capital Program, EXIM Bank programs; letters of credit; issuance and negotiation; document collections; wire transfers; traveler's checks; and foreign currency exchange.
Rocky Mountain Global Trade
P. O. Box 627
Poncha Springs, CO 81242
Tel: (720) 341-1668
Fax: (866) 805-1874
Services Provided: Credit and country risk management. Expertise in credit guarantee and insurance programs (GSM-102, Exim Bank, COFACE, private credit risk insurers).
918 17th Street, 5th Floor
Denver, CO 80202
Tel: (303) 585-4430
Fax: (303) 585-4442
Services Provided: International banking and trade services on a global basis. Specializing in trade services, letters of credit, trade credit insurance, foreign exchange and foreign market risk analysis.
Wells Fargo International Services
Joe Silva, Regional Manger
Bryan Peterson, Foreign Exchange Services
1740 Broadway, MAC C7300-014
Denver, CO 80274
Tel: (303) 863-6888
Fax: (303) 863-6916
Services Provided: Wells Fargo International Services provides integrated one-stop banking that enables clients to send and receive global payments with convenience and security. In addition, the Denver office provides a full spectrum of foreign exchange services and hedging strategies, including FAS 133 consultation from expert staff or foreign exchange specialists. Wells Fargo HSBC Trade Bank is the only nationally charted bank dedicated exclusively to international trade, offering the advantages of both global reach and local market understanding and providing a full range of trade finance solutions by two of the world's leading financial institutions.