Financing with ECA credits
Under conditions of limited access to long-term borrowed funds and high interest rates in Ukrainian banks it is difficult to find companies in the domestic market funds sufficient, for example, for purchasing equipment to modernize production.
As a source of cheap financing for purchasing imported equipment Ukrainian companies may use so-called export (trade) financing guaranteed by export credit agencies.
Generally, ECA is a government agency that provides support of the export potential by providing guarantees on loans for the purchasing goods produced in the country. The most famous private ECAs are Euler Hermes (Germany), COFACE (France), Atradius (The Netherlands).
The advantages of financing guaranteed by export credit agencies over other financial instruments are the following:
- crediting period for a long term (5-12 years);
- simplified procedure for granting the credit;
- short-term decision on financing;
- favorable payment terms for the credit (the credit vacation may be granted for up to 2 years);
- a loan without collateral;
- low interest rates of the funding foreign banks;
- ability to obtain financing at the bank, which is located abroad (if a large and financially stable company is credited);
- the possibility of forming a credit history of the company internationally.
ECA fund raising provides for the following conditions:
- financial stability and creditworthiness of the borrower;
- having a good credit history, including the payment discipline of the borrower;
- at least 50% of the imported goods or services must be produced in the major supplying country;
- the need for prepayment of a minimum of 15% of the total cost of operation (it is possible to borrow money to finance the prepayment).
On practice, loans guaranteed by ECAs can be granted according to two basic schemes:
- the borrower is a Ukrainian bank, which is accredited by ECA (ECA agreement to work with the bank), i.e. the credit is given to the Ukrainian bank to finance the aim contract of the Ukrainian importer;
- the borrower is the same Ukrainian company, i.e. the foreign lending bank has a direct importer of Ukrainian loan guaranteed by ECA and the Ukrainian bank.
The particular choice of the scheme depends largely on who – the bank or the importing company – will have more confidence in the sponsoring bank and of the ECA. No matter which of the two schemes is be chosen, ECA checks both the purchaser of the equipment and the bank guarantees.
During the process of raising funds through ECA, a prospective borrower must assess all the procedure expenses, consisting of the following mandatory fees:
- a one-time bonus / ESA commission -within 7-9%;
- the bank credit interest in the foreign financing bank - the floating rate (EURIBOR, LIBOR, etc.) + the margin of the bank (up to 2% per annum);
- the payment for services on deal structuring, project support, negotiations with ESA and the financing foreign bank, preparing the necessary documentation for the project and other services.
For more information on these and related questions, please contact us via (044) 591-52-53 or e-mail:
Our experts will help you to make a deal to attract funding for your business. Having our experience with various ECAs, financial and lending institutions will help you to reduce the time of finding the necessary resources.
To order investment documentation or another services, or to purchase a published project, please contact us via info@pro-consulting.ua
or +38 (044) 233-34-32
