Financing Guarantee requirements and conditions
EKF charges a premium for issuing a Financing Guarantee. We determine the premium based on three factors:
- Your buyer's credit rating: EKF assesses your buyer's credit rating, i.e. the likelihood that the buyer will pay. The higher the credit rating, the lower the premium.
- The political situation in your buyer's country: EKF assesses the risk of political unrest in your customer's country. The lower the risk of political unrest, the lower the premium.
- Term: The term refers to the number of months the customer will take to repay the loan. The shorter the term, the lower the premium.
In addition to the premium payable to EKF, the customer must also pay interest and costs to the bank for the credit extended. Your bank can give you the total price.
Three price examples:
- The cheapest Financing Guarantee costs 0.2 per cent p.a. This could be a Financing Guarantee to a customer with an exceptionally good credit rating from a high-income country such as Germany, the USA or Estonia. The term is 181 days.
- In many cases the premium is around 2 per cent p.a. This could be a customer with a below-average credit rating from a country associated with some political risk, such as Azerbaijan.
- As we approach the limit of transactions in which EKF is willing to participate, the premium could be as high as 4.25 per cent p.a. This could involve a country associated with major political risk, such as Ukraine.
Requirements and conditions
Danish and foreign banks are eligible for a Financing Guarantee from EKF.
EKF can guarantee both major and minor transactions with a Financing Guarantee. No limit applies to the amount covered.
A Financing Guarantee covers letters of credit and bills of exchange with a credit period of minimum 181 days.
If the buyer is from an OECD country, and if the order is for more than EUR 5 million, the credit period must be at least two years.
The credit period is always at least two years for transactions documented via a letter of credit.
No upper limit applies to the credit period.
The foreign customer is normally required to pay at least 15 per cent of the order amount in advance when the term exceeds one year. The credit must also be granted as a serial loan with principal repayments of equal size plus accrued interest.
EKF carries out a risk assessment of environmental protection and human rights related to the transactions based on the IFC's standards and guidelines.
EKF pays compensation if your company's bank incurs a loss on export transactions as a result of commercial or political risk.
- A commercial risk means that your buyer or the buyer's bank is unable to pay due to liquidation, insolvency or the like, or because the buyer is unwilling to pay.
- A political risk means that your bank does not receive payment from the foreign buyer or the buyer's bank due to impediments in the country you are exporting to. Such impediments include war (external armed conflict and domestic political violence), 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 90 per cent of the loss, and the bank can either retain the right of recourse against the exporter for 10 per cent of the residual debt or ensure that a deposit of 10 per cent is available