Buyer Credit

A buyer credit is based on a separate loan agreement between the exporter’s bank and the buyer (or buyer’s bank). This section explains the buyer credit in further detail.

How does it work?

The primary features of the buyer credit are:

• The NZ exporter contracts with their international buyer to supply goods or services.
• A separate and parallel loan agreement is entered into between a lending bank (normally based in New Zealand) and the international buyer or their bank, in order to finance the exporter’s supply of goods or services on credit terms.
• The lending bank receives an NZECO guarantee, which covers the risk of default on repayment, as security to provide this loan.
• The lending bank advances the funds to the exporter in line with the terms of the export supply contract, which typically results in the exporter being paid in full by the time the goods have been shipped or the project has been completed.
• The international buyer makes loan repayments to the lending bank in accordance with the agreed repayment schedule which is normally six-monthly, equal instalments of principal and interest.

A buyer credit is summarised in the diagram below:

What are the benefits?

Like the other products, buyer credits can provide an exporter with a competitive advantage of being able to grant a term of credit to its buyer, whilst receiving up-front cash payment for its exports in accordance with their standard supply contract. However, the key benefit of a buyer credit is that the loan agreement is separate from the supply agreement and is NOT subject to supply contract disputes.

When should it be used?

Loan agreements require extensive and lengthy legal negotiation. Due to the costs involved with drawing up a separate loan agreement, a buyer credit is most useful for export transactions of NZ$10 million and above.

We recommend that an exporter contacts the NZECO as soon as a potential deal is anticipated, and provides as much of the information available on the deal and buyer as possible. An exporter may also download and submit an NZECO application form.

Project Financing

In the case of project financing, a bank grants credit finance to a joint venture company (of which a NZ exporter will be a primary supplier) that has been formed to implement a specific project. In return, the bank gains primary access to the future cash flow, assets and contracts of the joint venture company, which provides the bank with security for their repayment. The NZECO provides the bank with a guarantee, which covers the risk of default on repayment of the credit.

Project finance is used for financing large equipment deliveries and project exports. The financing of these projects is often complex, with both the bank and the NZECO having to evaluate any application upon the forecasts of future earnings. This will involve research and assessment of the particular industry, foreign market and the ability of the joint venture to successfully complete the contract. The trading history and expertise of the NZ exporter will also be evaluated.

Given the complexity and higher risks associated with project financing, the NZECO’s risk sharing with the NZ exporter may vary between 50 – 80% of the commercial risk.