SUPPLIER LOAN AKA A
The buyer is granted a loan by the supplier. Repayment is carried out in an agreement with fixed rates and dates. In most cases, the supplier refinances the sale with a financial institution where the loan agreement is concluded exclusively between the supplier and the financial institution. In the event of payment difficulties on the part of the buyer, the supplier’s payment obligations to the bank continue to exist; in other words the supplier bears the default risk.
With a supplier loan, the exporter grants the international buyer a credit period and therefore carries the risks associated with this loan. A difference is made between short and medium/long-term credit transactions, which are usually secured by Euler Hermes.
Short-term individual cover, i.e. for transactions with a loan term of a maximum of 24 months, is offered by the German Federal Government primarily to secure transactions of consumer goods. Individual cover for medium and long-term transactions (with a loan term exceeding 24 months) are mainly encountered in connection with capital goods and plant construction.
With supplier loan cover, a German exporter secures a receivable with long or short periods for payment from an individual export transaction. It offers protection against:
|Insolvency of a buyer
|Government action and warlike events
|The non-conversion/transfer of national currency amounts
|The seizure of goods due to political circumstances
|The impossibility of contractual fulfilment on account of political circumstances
|As well as non-payment within six months after the due date (protracted default) in case of transaction with long periods for payment (especially capital goods and plant construction)
Supplier loans in the form of global loans are envisaged for the bundled financing of several smaller export transactions of a medium-term nature (e.g. consumer goods exports, call orders), as the financing by individual loans would be inefficient or not possible.