Basics of Exporting - Financial Assistance

Duty Drawback

Drawback occurs when a duty or tax that had been lawfully collected is refunded or remitted, wholly or partially, because of a particular use made of the commodity on which the duty or tax was collected. Duty drawback is a means by which companies can recover import duties on products they later export. Companies can recover up to 99 percent of the duties paid on the imported materials. In this manner, the government encourages commerce and manufacturing. Duty drawbacks permit the American manufacturer to compete in foreign markets without the handicap of including in his costs, and consequently in his sales price, the duty paid on imported merchandise.

• Manufacturing Drawback – In this type of drawback, the product is made in the U.S. of either wholly or partially imported material. If the product is later exported, the company can recover 99 percent of the duties paid on these imported materials (U.S. Customs retains at least 1 percent to defray costs). A company can recover duties even though they never directly imported a product. Companies can persuade their suppliers to assign their drawbacks to the company when the duties are paid to Customs. In order to recover this drawback, claims must be made within five years of importation.
• Same Condition Drawback – In this type of drawback, the items are exported in the same condition as when they were imported. This type of refund occurs when the goods do not meet the company's quality specifications, or when the goods are sold to someone outside the U. S. For a same condition drawback, claims must be made within three years of importation.

Most importers utilize a freight forwarder to process both the import transaction and later the duty drawback paperwork. In this way, your company does not need to provide much additional paperwork for the drawback. For more complicated situations, a company that specializes in drawback requests can handle the refund process. These companies often handle the entire procedure on a contingency basis. In such cases, the consulting company is paid a percentage of the amount successfully refunded from Customs.

If your company has unrealized opportunities to recover duties from Customs, speak with your freight forwarder about duty drawback or contact the U.S. Customs Service, Duty & Refund Determination Branch.

Foreign Sales Corporation (FSC)

A foreign sales corporation (FSC) constitutes the U.S. government's primary tax incentive for exporting U.S. produced products overseas. Using a FSC, U.S. exporters have obtained a 15 to 30 percent tax exemption on their export profits. A FSC provides a permanent exemption from U.S. corporate taxes of between 15 and 30 percent of the income earned from export sales.

Professional FSC management companies can handle the FSC's incorporation and other matters for a fee. Talk to your international lawyer or a tax professional about how a FSC might help your company increase its profit margin on international sales.

The Export-Import Bank (Ex-Im Bank)

The Export-Import Bank is an independent U.S. Government agency that helps finance the overseas sales of U.S. goods and services. Responsible for assisting the export financing of U.S. goods and services, the Bank offers a variety of loan, guarantee, and insurance programs. Through these programs, the Bank provides guarantees of working capital loans for U.S. exporters, guarantees loan repayment and extends loans to foreign purchasers of U.S. goods and services. The Ex-Im Bank also provides credit insurance, to protect exporters against the risks of non-payment by foreign buyers for political or commercial reasons. In this respect, the Ex-Im Bank does not compete with commercial lenders, but assumes the risks these lenders can not accept. In the context of these insurance programs, "Commercial risks" are defined as insolvency and protracted default. Meanwhile, "political risks" are those of currency inconvertibility, license cancellation, expropriation, loss due to war, revolution, etc.

Today some 30 countries provide export guarantees and credit insurance to their exporters, thus providing tough competition for U.S. companies with regard to extended terms of sale to their foreign customers. Companies in the U.S. should know that through the Ex-Im Bank they can acquire credit insurance almost as cheaply as their competitors abroad. As an exporter you should learn all the details and advantages of Ex-Im's programs and how they can help you expand your overseas sales.

Programs offered by Ex-Im Bank include:
Working Capital Guarantees cover 90 percent of the principal and interest on commercial loans to creditworthy small and medium-sized companies that need funds to buy or produce U.S. goods or services for export. Exporters may apply for a Preliminary Commitment, which is a letter from Ex-Im Bank outlining the terms and conditions under which it will provide a guarantee, and then use this letter to obtain the best financing terms from a private lender. The lender may also apply directly for a final authorization. Guarantees may be for a single transaction or a revolving line of credit. Generally, guaranteed loans have maturities of 12 months and are renewable.

Export Credit Insurance policies protect against both political and commercial risks of a foreign buyer defaulting on payment. Policies may be obtained for single or repetitive export sales as well as for leases. Short-term policies generally cover 100 percent of the principal for political risks and 90-95 percent for commercial risks, as well as a specified amount of interest. These policies support the sale of consumer goods, raw materials and spare parts on terms of up to 180 days, and bulk agricultural commodities, consumer durable and capital goods on terms of up to 360 days. Capital goods may be insured for up to five years, depending upon the contract value under medium-term policies. Also, this credit insurance policy allows exporters to finance receivables more easily by assigning the proceeds of the policy to their lender, or bank.

Guarantees of commercial loans to foreign buyers of U.S. goods and services cover 100 percent of principal and interest against both political and commercial risks of nonpayment. The sale of capital items such as trucks, construction equipment, scientific apparatus, food processing machinery, medical equipment or project-related services including architectural, industrial design and engineering services are covered by medium-term guarantees. Long-term guarantees are available for major products, large capital goods and/or project-related services. The Bank's Credit Guarantee Facilities can also be used to extend medium-term credit to buyers of U.S. capital goods and services through banks in certain foreign markets.

Direct Loans provide foreign buyers with competitive, fixed-rate financing for their purchases of U.S. goods.

Ex-Im Bank's loans, guarantees and medium-term insurance cover 85 percent of the contract price (100 percent of the financed portion). A 15 percent cash payment is required from the foreign buyer. Fees charged by the Ex-Im Bank are based upon risk assessment of the foreign buyer or guarantor, the buyer's country, and term of the credit. Compared to export credit agencies of different exporting countries, Ex-Im Bank's rates are highly competitive.

Where to Apply for Ex-Im Bank Programs
Ex-Im Bank's programs are easily accessible. Any responsible party — the foreign buyer, the U.S. exporter, a lending institution, or a firm representing either the buyer or the exporter — can apply directly to the Ex-Im Bank for a Letter of Interest (LI). Potential borrowers may also obtain assistance in the application process from any Ex-Im Bank office or one of the U.S. Export Assistance Centers (USEAC).

Market Access Program (MAP)

SUSTA administers the Market Access Program (MAP) Branded on behalf of the fifteen southern states and Puerto Rico. The MAP provides matching funds to market U.S. agricultural products in other countries, on a reimbursement basis. Companies must be small according to the Small Business Administration (SBA) guidelines. Products promoted with under MAP must be at least fifty percent U.S. agricultural origin by weight, excluding added water and packaging. Products and promotional materials must indicate that the product is a "Product of the USA". Eligible activities under this program include trade shows, advertising, in-store demonstrations, product brochures and point of sale materials.

How it Works
Companies must first apply for funding and receive a contract prior to conducting promotional activities. Then, participating companies or their importers expend their own funds to promote the U.S. products in other countries. The company collects invoices, proof of payment and proof of performance for the eligible activities and sends them to SUSTA. SUSTA then reimburses the company for half of the cost of the eligible expenses submitted. For more information or to receive an application, susta [at] susta [dot] org (contact SUSTA) or visit www.susta.org.

Small Business Administration

The Small Business Administration also provides financial assistance programs for U.S. exporters. The SBA assists businesses in obtaining the needed capital to explore, establish or expand into international markets. To participate, a business must qualify as a small business under the SBA's size standards as well as meet other eligibility requirements.

The Office of International Trade of the SBA administers two programs to assist small exporters: the Export Working Capital Program (EWCP) and the International Trade Loan Program (ITL). Both programs are guarantee programs, and therefore require the participation of an eligible commercial bank. Most commercial banks are familiar with SBA programs, and can provide more information or assist in the application process.

The Export Working Capital Program (EWCP) provides short-term, transaction-specific financing. The SBA guarantees up to $750,000 or 90% or the loan amount, whichever is less. Exporters may use this money for pre-export financing of labor and materials, financing receivables generated from these sales, and/or standby letters of credit used as performance bonds or payment guarantees to foreign buyers. To be eligible for this type of financial assistance, a company must have been in business for 12 months but not necessarily exporting during that time. A company may receive these funds for a period of up to one year.

Under the International Trade Loan Program, loans are made by lending institutions with a SBA guarantee for a certain portion of the loan. The SBA can guarantee an amount up to $1.25 million less the amount of SBA's guaranteed portion of other loans outstanding to the borrower under SBA's regular lending program. There can be a maximum share of $1 million for facilities and equipment and a maximum share of $750,000 of working capital. Loan maturities may not exceed 25 years excluding the working capital portion of the loan. To receive this money, companies must:

Use the loans to expand existing export markets or develop new ones
OR
Have been adversely affected by import competition

Another assistance program of the SBA is the 7(a) Loan Guaranty, one of SBA's primary lending programs. This program provides loans to small businesses unable to secure financing on reasonable terms through normal lending channels. It is operated through private-sector lenders who provide loans, which are then guaranteed by the SBA, which has no funds for direct lending or grants. For most loans, there is no legislated limit for the total amount requested from the lender. However, the maximum amount that the SBA can guarantee is generally $750,000. The loans can be used for most business purposes such as the purchase of real estate to house the business operations; construction, renovation or leasehold improvements; acquisition of furniture, fixtures, machinery and equipment; purchase of inventory; and working capital. Generally, these loans all have a maximum maturity of 25 years for real estate and equipment and a period of 7 years for working capital.

Small Business Investment Companies are privately owned and managed companies which, are regulated by the SBA. They use their own funds plus additional funds obtained from borrowing at favorable rates with an SBA guaranty and/or selling their preferred stock to the SBA, to make venture-capital investments in small businesses.

For more information about SBA's financial assistance programs, policies and requirements, call the SBA Information Desk or the nearest SBA field office.

FAS Sugar Programs

The Sugar-Containing Products Re-Export Program is designed to put U.S. manufacturers of sugar-containing products on a level playing field. A participant in this program may buy world priced sugar from any of the refiner participants or their agents for use in products that will be exported on the world market. This sugar is not included under the tariff-rate quota for sugar entering the United States.

The Refined Sugar Re-Export Program facilitates the use of domestic refining capacity to export refined sugar into the world market. This program allows one of three options for refiners. First, it allows refiners to export domestically produced refined sugar and later import world raw sugar. Second, it allows refiners to import world raw sugar for refining and distribution into the domestic market and later export refined sugar. Third, it allows refiners to import raw sugar, refine it, and export it into the world market.

The Sugar for the Production of Polyhydric Alcohol Program is established to provide world priced sugar to U.S. manufacturers of polyhydric alcohols. Participating U.S. manufacturers purchase world priced sugar from licensed refiners or their agents for use in the production of polyhydric alcohols, except polyhydric alcohols that are used as a substitute for sugar in human food consumption.

Supplier Credit Guarantee Program

The Supplier Credit Guarantee Program of the Commodity Credit Corporation (CCC) was enacted to encourage U.S. exporters to expand, maintain, and develop markets for U.S. agricultural commodities and products in areas where commercial financing may not be available without a CCC payment guarantee. This program is primarily for high-value and value-added agricultural products. The CCC Supplier Credit Guarantee Program guarantees a portion of payments due from importers under short-term financing (up to 180 days) that exporters have extended directly to the importers for the purchase of U.S. agricultural commodities and products.

Facility Credit Guarantee Program

The Facility Guarantee Program provides payment guarantees to facilitate the financing of manufactured goods and services exported from the U.S. to improve or establish agriculture -related facilities in emerging markets. By investing in these facilities, it is hoped that the demand for U.S. agricultural commodities and products will increase to these markets, where such demand may have previously been restricted due to inadequate storage, processing, or handling capabilities for these products.

Information on the Sugar Re-Export, Supplier Credit Guarantee, and Facility Guarantee Programs and other FAS programs can be found in the Programs section of their website, at www.fas.usda.gov/export.html.