USDA’s trade finance programs provide U.S. exporters with options to safeguard financial transactions while encouraging exports of U.S. agricultural products.
The USDA administers two programs: Export Credit Guarantee Program (GSM-102) and the Facility Guarantee Program (FGP).
Export Credit Guarantee Program (GSM-102)
The GSM-102 program provides credit guarantees to encourage financing of commercial exports of U.S. agricultural products. By reducing financial risk to lenders, credit guarantees encourage exports to buyers in countries — mainly developing countries — that have sufficient financial strength to have foreign exchange available for scheduled payments.
The program is available to exporters of:
- high-value, consumer-oriented, processed products such as frozen foods, fresh produce, meats, condiments, wine and beer;
- intermediate products such as hides, flour and paper products; and
- bulk products such as grains, oilseeds and rice.
The GSM-102 program guarantees credit extended by the private financial sector in the United States (or, less commonly, by the U.S. exporter) to approved foreign financial institutions using dollar-denominated, irrevocable letters of credit for purchases of U.S. food and agricultural products by foreign importers. FAS administers the program on behalf of the Commodity Credit Corporation (CCC), which issues the credit guarantees. GSM-102 covers credit terms of up to 18 months; maximum terms may vary by country.
CCC guarantees payments due from approved foreign financial institutions to exporters or financial institutions in the United States. However, the financing must be obtained through normal commercial sources. Typically, 98 percent of principal and a portion of interest are covered by a guarantee. Any follow-on credit arrangements between the foreign financial institution and the importer are negotiated separately and are not covered by the CCC guarantee. The FAS website provides information on specific country and commodity allocations and other program information and requirements.
Participation
CCC must qualify exporters for participation before accepting guarantee applications. Financial institutions must meet established criteria and be approved by CCC. CCC sets limits and advises each approved foreign financial institution on the maximum amount CCC will guarantee for that bank. Requirements for exporter and U.S. and foreign financial institution participation are available in the program regulation and on the FAS website.
Once approved to participate, the exporter negotiates terms of the export sale with the importer. Once a firm export sale exists, the qualified U.S. exporter must apply for a payment guarantee before the date of export. The exporter pays a fee calculated on the dollar amount guaranteed. Fee rates are currently based on the country risk that CCC is undertaking, including country-specific macroeconomic variables; risk of the foreign obligor (bank); the repayment term (tenor); and repayment frequency under the guarantee.
Program Fees
The exporter must pay a guarantee fee on the dollar amount guaranteed. Guarantee fees are based on country risk, obligor risk, tenor, percentage of cover, and other factors.
Financing
The CCC-approved foreign financial institution issues a dollar-denominated, irrevocable letter of credit in favor of the U.S. exporter, ordinarily advised or confirmed by the financial institution in the United States agreeing to extend credit to the foreign financial institution. The U.S. exporter may negotiate an arrangement to be paid as exports occur by assigning to an approved U.S. financial institution the right to proceeds that may become payable under the CCC’s guarantee. The exporter is required to provide a report of export to CCC for each shipment that occurs under the payment guarantee. If the exporter has assigned the payment guarantee to a U.S. financial institution, the exporter would provide these export reports and other transaction-related documents required by the U.S. financial institution.
Eligible Countries or Regions
Interested parties, including U.S. exporters, foreign importers, and financial institutions, may request that CCC establish a GSM-102 program for a country or region. Prior to announcing the availability of guarantees, CCC evaluates the ability of each country and foreign financial institution to service CCC-guaranteed debt. New financial institutions may be added, or levels of approval for others may be increased or decreased, as information becomes available.
Eligible Commodities
CCC selects agricultural commodities and products according to market potential and eligibility based on applicable legislative and regulatory requirements.
Defaults and Claims
If the foreign financial institution fails to make any payment covered by the GSM-102 guarantee, the holder of the payment guarantee must submit a notice of default to CCC within the timeframe required by the program regulations. A claim for default also may be filed within the required timeframe, and CCC will pay claims found to be in good order.
For CCC audit purposes, the U.S. exporter must obtain documentation to show that the commodity arrived in the eligible country or region, and the exporter and the assignee must maintain all transaction documents for five years from the date of completion of all payments.
Facility Guarantee Program
The Facility Guarantee Program is designed to boost sales of U.S. agricultural products in countries where demand may be limited due to inadequate storage, processing, handling, or distribution capabilities. The program provides credit guarantees to facilitate the financing of manufactured goods and U.S. services to improve or establish agriculture-related facilities in emerging markets.
Under the FGP, the Commodity Credit Corporation (CCC) reduces the financial risk to lenders by guaranteeing payments due from approved foreign financial institutions to U.S. sellers or financial institutions. However, the financing must be obtained through normal commercial sources. Any follow-on credit arrangements between the foreign financial institution and the importer are negotiated separately and are not covered by the CCC guarantee. CCC will only consider issuing a guarantee if a transaction will primarily benefit U.S. agricultural commodity exports.
FGP covers credit terms of up to 10 years; maximum terms may vary by country. A minimum initial payment of 15 percent of the net contract value must be made by the buyer to the seller prior to the start of the credit. CCC may offer coverage of up to 100 percent of the net contract value less the initial payment. CCC’s coverage may include non-U.S. goods (including certain local costs) if the seller so requests and CCC determines that U.S. goods are not available or their use is not practicable.
Participation
Sellers must qualify for participation in the FGP before CCC will accept any payment guarantee applications from the Seller. All U.S. and foreign financial institutions must meet established criteria and be approved by CCC. CCC sets limits and advises each foreign financial institution on the maximum amount CCC will guarantee for that institution. Requirements for seller and U.S. and foreign financial institution participation are available in the program regulation and on the FAS website.
Once approved to participate, a seller may seek FGP coverage for transactions. The seller may opt to submit to CCC a letter of interest describing a proposed transaction, to get preliminary feedback on whether the proposed transaction may be eligible for FGP coverage. Once a firm export sale exists, the seller may submit an initial application for a payment guarantee. If the initial application is conditionally approved, the seller must submit the final application along with the full guarantee fee.
All payment guarantee applications must be accompanied by an environmental and social screening document and will be reviewed for potential negative environmental and social impacts. The seller may be required to submit additional information to CCC, including an environmental and social impact assessment. Certain transactions may be subject to environmental and social monitoring and reporting by the seller throughout the life of the payment guarantee. CCC may reject an application for payment guarantee if the transaction entails significant adverse environmental and/or social impacts that cannot be satisfactorily mitigated.
Program Fees
The seller must pay a guarantee fee on the dollar amount guaranteed. Guarantee fees are based on country risk, obligor risk, tenor, percentage of cover, and other factors.
The seller must also pay a nonrefundable fee if the seller opts to submit a letter of interest, and also an initial application fee. The letter of interest (if applicable) and initial application fees will be deducted from the final guarantee fee if CCC issues a payment guarantee to the seller.
Financing
The CCC-approved foreign financial institution issues a dollar-denominated, irrevocable letter of credit in favor of the U.S. seller, ordinarily advised or confirmed by the financial institution in the United States agreeing to extend credit to the foreign financial institution. The seller may negotiate an arrangement to be paid as contractual events occur by assigning to an approved U.S. financial institution the right to proceeds that may become payable under the CCC’s guarantee.
Eligible Destination Countries
Emerging markets that are eligible destination countries under the FGP will be listed on the FAS website. CCC’s selection of destination countries will be based on program statutory requirements, risk considerations, and any other factors determined appropriate by CCC.
Defaults and Claims
If the foreign financial institution fails to make any payment covered by the FGP guarantee, the holder of the payment guarantee must submit a notice of default to CCC within the timeframe required by the program regulations. A claim for default also may be filed within the required timeframe, and CCC will pay claims found to be in good order.
For CCC audit purposes, the U.S. seller must obtain documentation to show that all goods arrived in the destination country, and the seller and the assignee must maintain all transaction documents for five years from the expiration of coverage of the payment guarantee.