Australian exporters have been under additional pressure this year as the local dollar soared, but a government-supported working capital guarantee fund is helping many small business owners finance expanding international sales contracts, without having to meet the usual asset requirements for business loans.
An arrangement between the Commonwealth Bank (CBA) and the Australian Government’s export credit agency, Export Finance and Insurance Corporation (EFIC), was signed recently, allowing approved small business borrowers to access funds through the CBA with EFIC as guarantor.
CBA joins Westpac and ANZ as a lender under the EFIC working capital arrangement, and according to CBA’s Global Head of Trade Finance and International Payments, Tony Sacre
CBA is well placed to support small business exporters, as there are trade sales and solutions teams in each Australian capital city,
“We’ll be providing funds and support on the ground, which means quick processing of payments for export-related transactions,” he told Smarter Business Ideas.
“The benefit of this arrangement between Commonwealth Bank and EFIC is that exporters can access working capital finance, without having to provide as much security for the loan as we would require without EFIC’s guarantee.”
Sacre said that while the commodities and agricultural sectors remain important borrowers, this fund is available (and attracts) a very diverse range of exporters.
A number of substantial loans have already been written using the EFIC working capital guarantee. These include a US $600,000 loan from Westpac to Melbourne cycling accessories manufacturer Knog to ease cash flow, and a A$1 million loan from ANZ to Sydney digital media company Viocorp to enable it to finance its first overseas contract, in Malaysia.
Knog already exports to over 40 countries, but CEO Hugo Davidson said the guarantee enabled them to offer better payment terms to customers and distributors.
“The mismatch between when we have to pay our suppliers and when we get paid by our distributors is a challenge for us,” Davidson explained, adding the loan enabled a more even cash flow.
Alex Fernandez is Head of Products and Transaction Management at EFIC and said the arrangement is suitable for small business exporters who already have a good track record and want to expand.
“Typically, we’d expect a turnover of around $5 million a year and often, an exporter will come to us because they have won an export contract that’s just too big for them to fund under normal bank terms.”
While a bank will base a loan approval on a company’s underlying financial position, EFIC takes a meticulous look at the nature of export contracts and the company’s ability to deliver, Fernandez explained.
“We are willing to take on board a different level of risk to the banks,” he said.