by Philip H. de Leon

Many U.S. exporters have struggled with the challenge of obtaining financing for exports to Eurasia. Sometimes, this can seem like an insurmountable obstacle, but the reality is that financing can be found as long as careful preparation is undertaken and the requisite information is available to attract financing. A good approach is to consider your deal from the standpoint of a finance provider. The following is information that a finance provider looks for in considering a Eurasian transaction. Addressing these issues is essential if a U.S. exporter wants to participate in BISNIS FinanceLink program (http://bisnis.doc.gov/bisnis/finlink), a free service that forwards a financing request directly to finance providers for consideration.

Is there an identified buyer, and in which country?

This is an essential element to start with, since the reliability of the buyer will be a key selection criterion and its location (country/city) a good indication if repayment can reasonably be expected. The absence of an identified buyer can be perceived as an indication that there is no market for the export considered.

Has the company/buyer been audited?

Although the chances of getting a positive answer are limited, it is a good to ask, because some Eurasia companies have been audited, even per IAS/GAAP standards. A look at the buyer's financial statements can help in assessing repayment capabilities over time.

What is the amount involved?

Since Eurasia is a challenging market, processing a finance request can be costly and time consuming for a trade finance provider. Not long ago, it was difficult to find financing for small transaction amounts because of the low returns they generate and the associated high fixed costs. However, BISNIS has recently noted a surge in interest from finance providers in financing deals between $100,000 and $10 million. This is a dramatic change that can partly be explained by the fact that the world economic slowdown has not affected Eurasia as it has traditional export markets such as Asia and South America, causing finance providers to reconsider their attitude toward the market.

If the amount sought is much lower than $100,000, an exporter may want to recommend that the buyer try to work out a loan arrangement with local banks. One option is for the buyer to look for a local bank that is participating in a program with a multilateral institution, such as the European Bank for Reconstruction and Development (EBRD) Trade Facilitation Program (www.ebrd.com/apply/trade/about/main.htm) whereby the EBRD takes the political and commercial payment risk of transactions undertaken by issuing banks.

Who does the buyer bank with in Eurasia?

There are many small and/or unreliable banks in Eurasia that do not have correspondent relationships with Western banks or have not been audited to Western standards. It may be necessary to encourage a buyer to seek out larger, more stable, or well-established regional or national banks, particularly those with relationships with Western banks. U.S. exporters interested in applying to the U.S. Export-Import Bank for financing assistance should (1) check Ex-Im Bank's Country Limitation Schedule (www.exim.gov) to see if Ex-Im financing is available in the market and (2) check with Ex-Im Bank regarding whether there is requirement for a local bank guarantee.

Will sufficient cash flow be generated from the project to repay the loan?

If the buyer is purchasing raw materials to process, is there a market for the finished good? If the purchase is for equipment, is there a market to absorb the goods that will be manufactured as a result of the increased or new production capabilities?

Have all the aspects of shipment been considered?

Have the exporter and the buyer agreed on the best way to ship the goods and determined who will pay the freight and insurance costs? Are they familiar with the necessary certification requirements and shipping documentation? Has a timeline for the transfer of ownership been determined? These are important considerations that must be addressed before a contract is signed.

What is the status of the contract?

Is the contract more of a protocol of agreement, a preliminary contract, or a full-fledged contract? Was it prepared by the exporter or by a law firm familiar with Eurasian business practices? Does it contain an arbitration clause enabling the settlement of disputes outside the local court system? It is highly recommended that all points of the contract be determined at once, rather than left for a later date. The agreement should be as comprehensive as possible.

Uncertainty on any of the above issues is a signal that more information and preparation are needed.

Philip H. de Leon covers finance issues for BISNIS in Washington, D.C.

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)

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