Finance Guarantee
Finance Guarantee
A Finance Guarantee is a security for the credit institution granting an export credit to the exporter. It protects the bank from the risks relating to repayment of the credit. The guarantee helps exporters to arrange security for the financing needed for exports.
The guarantee is granted to a bank or other lender. The coverage granted to the lender varies depending on the enterprise and project in question. Finnvera has full recourse towards the exporter for indemnity paid to the lender.
The guarantee is ideal as security for financing during the manufacturing period or after delivery, and can be used for export transactions with either short-term or medium/long-term payment terms. A Finance Guarantee does not cover credit risks related to a foreign buyer or the buyer's country.
Post-delivery financing
A post-delivery Finance Guarantee is issued for a security for a credit granted by the bank to the exporter to refinance a supplier’s credit granted by the exporter to the buyer. The guarantee may pertain to a single export transaction or it may be granted as a limit for continuous exports. In a single transaction, the maximum credit guaranteed equals the supplier’s credit. In continuous exports, the maximum credit guaranteed equals the sum of the outstanding export receivables. The credit covered by the guarantee is repaid primarily by payments received from the buyer. Ultimately, the exporter is responsible for repaying the credit.
Pre-delivery financing
A pre-delivery Finance Guarantee is granted as security for a credit received by the exporter for financing manufacturing costs. The maximum amount of the credit guaranteed is the export finance deficit arising during the time of manufacture. In general the credit is repaid in proportion to the decrease of deficit. A pre-delivery Finance Guarantee is usually granted only to large enterprises. SMEs may be granted a loan or a Finnvera Guarantee for the financing of exports during manufacture.
Terms and conditions of the Finance Guarantee
The Finance Guarantee is issued to a lender approved by Finnvera. The lender grants an export credit to the exporter. Before the pre-delivery credit is withdrawn, Finnvera usually requires that the exporter has received an order from the foreign buyer.
A prerequisite for granting the guarantee is that the exporter is eligible for a guarantee. The principal factors affecting eligibility for aguarantee are the results of the exporter’s operations and the exporter’s financial status, the exporter’s ability to carry out the export transaction, and the risks involved in the transaction. In general, Finnvera determines these factors by means of a corporate analysis.
The exporter is required to provide counter security. In the case of post-delivery Finance Guarantees, assignment of receivables from the foreign buyer to the lender or to Finnvera is usually required.
Guarantee coverage
The guarantee coverage to the lender varies with company and project and the maximum is 80%. The guarantee covers the principal and interest of the credit, as well as other fees that the borrower has agreed to pay as per the credit terms.
Right of recourse
Finnvera has full right of recourse towards the exporter for indemnity paid to the lender.
Guarantee costs
The guarantee premium is calculated on the principal of the credit; it is collected from the exporter in advance, usually as a single payment. The amount of the premium depends on the risks to be covered, the exporter’s creditworthiness, and the counter-security provided. In addition, a handling fee is charged.
Claiming indemnification
The beneficiary of the export credit guarantee, i.e. the Guarantee Holder, usually the exporter or the bank, submits a claim for indemnification based on an export credit guarantee with a signed written application. The applicant may also be the transferee of an indemnity right.
