SBA Export Financing: How to Use an EWCP Loan to Support a Standby Letter of CreditKAM
A new fee structure has been put into place for SBA’s Export Working Capital Program (EWCP) that makes these loans more attractive to lenders and borrowers.
The Office of International Trade had manufacturers in mind when designing the new fee structure, specifically those engaged in custom manufacturing or engineering. Many of these types of projects include an initial deposit that the foreign buyer may request a standby letter of credit to help secure. The standby letter of credit would be used to protect the deposit in the event of a default on the contract.
When a standby letter of credit is required, the lender will typically use the funds received or availability on a line of credit to collateralize the obligation. As such, the deposit does not provide additional working capital to support the project.
Utilizing an EWCP, a lender can require as little as 25% of the letter of credit to be secured with cash. This leaves the remaining funds available to be used by the business to support the project. In addition to the increased liquidity, the exporter can also realize a reduction in the overall financing cost of the project as the cost of establishing an EWCP to support the letter of credit is often less than what it would cost to borrow on their line of credit.
As part of the Economic Aid Act signed into law on December 27, 2020, the guarantee fee on all SBA 7a loans is being paid by to the lender by SBA through September 30, 2021 or until funding runs out. This means that lenders obtain up to a three-year authorization on their EWCP loans at no cost to the borrower.
The guarantee fee for EXCP loans of 12 months or less is now 0.25% of the guaranteed portion, for loans between 12-24 months, it’s 0.525%, and for loans between 24-36 months, it’s 0.80%.
Letters of credit are customized instruments and the Office of International Trade’s experienced staff of Export Finance Managers are available to help lenders review any transaction in which one may be required.