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Financing Guarantee

​A Financing Guarantee allows an exporter to arrange financing for bills of exchange and letters of credit through its bank so the exporter avoids liability for the risk and receives the money immediately. The Financing Guarantee covers the bank’s risk of making a loss.

  • Advantages of Financing Guarantee

    Advantages for you as an exporter
    You can help your buyer secure credit for placing orders with you. With a Financing Guarantee, your bank will be happy to grant your buyer credit. EKF pays compensation if the foreign buyer’s payments are not made as agreed.

    You receive payment from your own bank on presenting the agreement documents. This means that even if your buyer has a long payment deadline, you avoid having money tied up for an extended credit period.

    Advantages for you as a buyer of Danish goods
    You get access to an attractive loan from a Danish or foreign bank. Thus, you can buy the products you want for your business to grow – as long as it is from a Danish company.

    Advantages for you as a bank
    A Financing Guarantee protects the bank against losses on letters of credit and bills of exchange. If something goes wrong, EKF covers most of the loss.

  • What is Financing Guarantee?

    ​In international trade, letters of credit (ILC or L/C) and bills of exchange (B/E) are used by companies and banks as payment for export orders. The two forms of payment are recognised internationally and may be used by an exporter who sells products abroad and wants security for the transaction.

    When the exporter receives a letter of credit or a bill of exchange from a foreign buyer or bank, the exporter can ask its bank to finance it. In doing so, the bank assumes the risk that the foreign buyer or the buyer’s bank defaults on payment. In this way, there is no risk to the exporter, who can then concentrate on doing business.

    However, banks are not always willing to assume the risk for letters of credit and bills of exchange for foreign customers they have no relationship with.

    ​This is where a Financing Guarantee makes a difference by covering most of the bank’s risk. If something goes wrong, EKF will pay compensation to the bank.

    As such, a Financing Guarantee is a guarantee EKF issues to a bank. But ultimately it benefits the exporter. By reducing the bank’s risk, EKF ensures that banks are willing to finance letters of credit and bills of exchange even in markets they are not used to operating in.

    The exporter is not involved, or only to a limited extent, in financing the foreign buyer. The exporter’s bank deals directly with EKF concerning the Financing Guarantee so the exporter can concentrate on the export order.

  • How does Financing Guarantee work?

    ​You sign an export contract and arrange with your foreign buyer for the order to be paid by a letter of credit or bill of exchange. A letter of credit is issued by a bank, whereas a bill of exchange is typically issued by the foreign buyer.

    ​EKF issues a guarantee to your bank. Then we assume the risk. The bak provides financing for your buyer ang you get the order. The bank finances the letter of credit or bill of exchange and you get the money immediately.
  • What does Financing Guarantee cost?

    ​EKF charges a premium for issuing a Financing Guarantee. The premium is determined on the basis of the following three parameters:

    The buyer’s creditworthiness: EKF rates the buyer’s creditworthiness. The higher the creditworthiness, the lower the premium.

    The political situation in the buyer’s country: EKF assesses the risk of political unrest in the buyer’s country. The lower the risk of political unrest, the lower the premium.
     
    Credit period: The credit period is the number of months the buyer will take to repay the loan. The shorter the credit period, the lower the premium.
     
    In addition to the premium payable to EKF, the buyer pays interest and costs to the bank for the credit. Your bank can give you the total price.

    Three price examples
    The least expensive Financing Guarantee costs 0.2% p.a. This would be for a buyer with an exceptionally good credit rating from a high-income country, such as Germany, the USA or Estonia. The credit period would be 181 days.
     
    In other cases, the premium is around 2% p.a. This would be for a buyer with a below-average credit rating from a country subject to certain political risks, such as Azerbaijan.

    As we get closer to EKF’s risk threshold, the premium goes up to around 4.25% p.a. This would be the case for a country subject to major political risks, such as Ukraine.

  • Terms & conditions regarding Financing Guarantee

     
    Who is eligible for a Financing Guarantee?
    Danish and foreign banks.
    As an exporter, you do not have to meet any eligibility requirements.
     
    What is the limit on a Financing Guarantee?
    EKF guarantees both large and small transactions with a Financing Guarantee. No limit is applied.
     
    What is the term?
    A Financing Guarantee covers letters of credit and bills of exchange with a credit period of at least 181 days.
    If the buyer is from an OECD country or if the order exceeds EUR 5 million, the credit period must be at least 2 years.
     
    The credit period is always at least 2 years for transactions documented by a letter of credit.
    No upper limit applies to the credit period.
     
    Conditions
    The foreign buyer is normally required to pay at least 15% of the order amount in advance for a credit period of more than 12 months. The credit must also be granted as a serial loan with principal repayments of equal size plus accrued interest.
    Environmental and social sustainability requirements
    EKF assesses the environmental risks and risks related to human rights in the transaction. The risk assessment is based on IFC standards and guidelines.

     

    What does EKF cover?
    EKF pays out compensation if the exporter’s bank makes a loss on an export order as a result of commercial or political risks.

     
    Commercial risk occurs when the buyer or the buyer’s bank is unable to pay due to liquidation, insolvency for example.
     
    Political risk occurs when the bank does not receive payment from the foreign buyer or the buyer’s bank due to impediments in the country. Such impediments include war or civil war, currency shortages, restrictions on use of currency, import or export bans, and interventions by local authorities that make it impossible to receive payment for the products.
     
    EKF covers up to 95% of the bank’s loss, so the bank’s deductible is a minimum of 5%.

Advantages of Financing Guarantee

Advantages for you as an exporter
You can help your buyer secure credit for placing orders with you. With a Financing Guarantee, your bank will be happy to grant your buyer credit. EKF pays compensation if the foreign buyer’s payments are not made as agreed.

You receive payment from your own bank on presenting the agreement documents. This means that even if your buyer has a long payment deadline, you avoid having money tied up for an extended credit period.

Advantages for you as a buyer of Danish goods
You get access to an attractive loan from a Danish or foreign bank. Thus, you can buy the products you want for your business to grow – as long as it is from a Danish company.

Advantages for you as a bank
A Financing Guarantee protects the bank against losses on letters of credit and bills of exchange. If something goes wrong, EKF covers most of the loss.

What is Financing Guarantee?

​In international trade, letters of credit (ILC or L/C) and bills of exchange (B/E) are used by companies and banks as payment for export orders. The two forms of payment are recognised internationally and may be used by an exporter who sells products abroad and wants security for the transaction.

When the exporter receives a letter of credit or a bill of exchange from a foreign buyer or bank, the exporter can ask its bank to finance it. In doing so, the bank assumes the risk that the foreign buyer or the buyer’s bank defaults on payment. In this way, there is no risk to the exporter, who can then concentrate on doing business.

However, banks are not always willing to assume the risk for letters of credit and bills of exchange for foreign customers they have no relationship with.

​This is where a Financing Guarantee makes a difference by covering most of the bank’s risk. If something goes wrong, EKF will pay compensation to the bank.

As such, a Financing Guarantee is a guarantee EKF issues to a bank. But ultimately it benefits the exporter. By reducing the bank’s risk, EKF ensures that banks are willing to finance letters of credit and bills of exchange even in markets they are not used to operating in.

The exporter is not involved, or only to a limited extent, in financing the foreign buyer. The exporter’s bank deals directly with EKF concerning the Financing Guarantee so the exporter can concentrate on the export order.

How does Financing Guarantee work?

​You sign an export contract and arrange with your foreign buyer for the order to be paid by a letter of credit or bill of exchange. A letter of credit is issued by a bank, whereas a bill of exchange is typically issued by the foreign buyer.

​EKF issues a guarantee to your bank. Then we assume the risk. The bak provides financing for your buyer ang you get the order. The bank finances the letter of credit or bill of exchange and you get the money immediately.

What does Financing Guarantee cost?

​EKF charges a premium for issuing a Financing Guarantee. The premium is determined on the basis of the following three parameters:

The buyer’s creditworthiness: EKF rates the buyer’s creditworthiness. The higher the creditworthiness, the lower the premium.

The political situation in the buyer’s country: EKF assesses the risk of political unrest in the buyer’s country. The lower the risk of political unrest, the lower the premium.
 
Credit period: The credit period is the number of months the buyer will take to repay the loan. The shorter the credit period, the lower the premium.
 
In addition to the premium payable to EKF, the buyer pays interest and costs to the bank for the credit. Your bank can give you the total price.

Three price examples
The least expensive Financing Guarantee costs 0.2% p.a. This would be for a buyer with an exceptionally good credit rating from a high-income country, such as Germany, the USA or Estonia. The credit period would be 181 days.
 
In other cases, the premium is around 2% p.a. This would be for a buyer with a below-average credit rating from a country subject to certain political risks, such as Azerbaijan.

As we get closer to EKF’s risk threshold, the premium goes up to around 4.25% p.a. This would be the case for a country subject to major political risks, such as Ukraine.

Terms & conditions regarding Financing Guarantee

 
Who is eligible for a Financing Guarantee?
Danish and foreign banks.
As an exporter, you do not have to meet any eligibility requirements.
 
What is the limit on a Financing Guarantee?
EKF guarantees both large and small transactions with a Financing Guarantee. No limit is applied.
 
What is the term?
A Financing Guarantee covers letters of credit and bills of exchange with a credit period of at least 181 days.
If the buyer is from an OECD country or if the order exceeds EUR 5 million, the credit period must be at least 2 years.
 
The credit period is always at least 2 years for transactions documented by a letter of credit.
No upper limit applies to the credit period.
 
Conditions
The foreign buyer is normally required to pay at least 15% of the order amount in advance for a credit period of more than 12 months. The credit must also be granted as a serial loan with principal repayments of equal size plus accrued interest.
Environmental and social sustainability requirements
EKF assesses the environmental risks and risks related to human rights in the transaction. The risk assessment is based on IFC standards and guidelines.

 

What does EKF cover?
EKF pays out compensation if the exporter’s bank makes a loss on an export order as a result of commercial or political risks.

 
Commercial risk occurs when the buyer or the buyer’s bank is unable to pay due to liquidation, insolvency for example.
 
Political risk occurs when the bank does not receive payment from the foreign buyer or the buyer’s bank due to impediments in the country. Such impediments include war or civil war, currency shortages, restrictions on use of currency, import or export bans, and interventions by local authorities that make it impossible to receive payment for the products.
 
EKF covers up to 95% of the bank’s loss, so the bank’s deductible is a minimum of 5%.
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