Exporting in your future?

I recently had a very interesting discussion with an Export Development Canada (EDC) representative about the program. I didn’t think it was a topic for my funding help column as I thought everyone was familiar with EDC. So, I did a quick survey of a few senior-level business people and found out how wrong I was.
EDC was founded in 1944 and according to its collateral has “facilitated more than $1,041 billion in exports and foreign investment by Canadian companies.” Its most recently published data states that in 2012 more than 7,400 Canadian companies doing business in 187 countries have been assisted by the program. The majority of these companies are small businesses and more than 30% of this business was conducted in “fast-growing emerging markets.”
EDC has a number of products to help companies open up new markets, and specifically to help them with:

  • Protection against risk
  • Freeing up of working capital
  • Supporting business growth
  • Investing in foreign markets

Obtaining financing
EDC segregates its products into three classes: insurance related, financing related and bonding and guarantees. Let’s look at each of these in order to understand how they can help your business when you are ready to enter a new market.

Insurance Related Products
EDC provides Accounts Receivable Insurance to reduce your risk when dealing with foreign customers. Any Canadian business that sells goods or services outside Canada, including the U.S., is eligible for assistance. If you’d just like to start small with a single new foreign customer, EDC can provide you with Single

Buyer Insurance.
You can also utilize EDC for its Contract Frustration Insurance, which can insure up to 90% of eligible losses, including customer bankruptcy or default, customer contract cancellation, payment delays caused by blocked funds or transfer difficulties, cancellation of export or import permits, and coverage in the case of foreign hostilities or foreign government payment intervention.

It’s not uncommon for a foreign buyer to ask for assurances that you will perform as contractually obligated. EDC Performance Security Insurance is another product that you can use to cover up to 95% of loses if your foreign customers demand payment on a bank-issued guarantee without valid reason. Furthermore, EDC also offers Political Risk Insurance for your company if you are putting assets or investments into a country where the political situation is unstable.
While the above protective measures might scare away the weak at heart from expanding to a foreign market, remember that insurance is meant to protect you against an unlikely event, and hopefully will never need to be called upon in your expansion endeavours.

Financing Products
Many of the programs that I have written about this year include government assistance with respect to financial institution lending. EDC has an Export Guarantee Program, a Supplier Financing Program and a Foreign Investment Financing Program to assist you in getting the financing you need from both a sales and foreign assets perspective. As a selling feature to your foreign customers, EDC also has its Foreign Buyer Financing Program which can provide loans, lines of credit and even guarantees to your customer’s financial institution to provide you with a competitive edge against competitors from countries not offering such creative solutions. In situations where raising well structured financing is a requirement for success, EDC also offers a Structured Project Financing Program.

Bonding and Guarantees
Some of the more difficult hurdles to overcome when entering a new market are the bonding requirements and the risk of foreign currency fluctuations turning a profitable sale into a nightmare. EDC provides three products to help with these problems: an Account Performance Security Guarantee; a Foreign Exchange Facility Guarantee; and Surety Bond Insurance.

Credit Profiles
EDC maintains an online database covering millions of companies. For a nominal fee, you can have access to the credit profiles maintained by EDC. The product is called EXPORTCheck, and provides your credit department with another tool in its arsenal to enable you to evaluate the risk of any relationship you might choose to pursue.

Remember, in order to obtain assistance from EDC and a financial institution, you only have one chance to make a good first impression. So, as we’ve said before in this column, do your research, be ready, be professional and above all, be realistic.

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Elliot Schiller is a Director at Toronto’s Teeger Schiller Inc., a firm specializing in government funding and systems selection/implementation. His clients receive over $5 M annually to support ongoing business innovation. E-mail eschiller@teegerschiller.com, visit www.FundingHelp.ca or phone 1-888-816-0222 Ext. 102