Buyer credit guarantee
A buyer credit guarantee is an export credit agency guarantee of a bank loan made to an overseas buyer so that capital goods, services or intangibles can be purchased from an eligible exporter. Under UKEF's Buyer Credit Facility, UKEF gives that guarantee to the lending bank: the exporter is paid as under a cash contract, and the buyer or borrower repays principal and interest over an extended period, typically two years or longer.
Buyer credit guarantee use on bank export finance desks
On EF desks the funded instrument is the buyer credit loan. The guarantee is the risk-transfer layer that protects the bank against non-payment of instalments of principal and interest due under the guaranteed loan. UKEF states that protection applies for whatever reason those instalments are unpaid. Buyers may be corporate, sovereign or public. Supported structures can include limited-recourse project finance, Islamic finance, public-private partnerships and capital-markets refinancing.
The guarantee therefore separates three cash-flow paths: the exporter receives contract amounts as the loan draws; the buyer amortises the loan over years; and the bank holds official cover against buyer or country default. That architecture is why buyer credit guarantees appear in medium- and long-term capital-goods packages rather than as short-term trade-credit insurance alone.
Mechanics, eligibility and Arrangement framing
UKEF's published Buyer Credit Facility eligibility includes:
- an exporter carrying on business in the UK
- an export contract of at least £5 million (or foreign-currency equivalent)
- a lending bank acceptable to UKEF
- a repayment period of at least two years
Maximum loan support is 85% of contract value. A minimum of 15% of contract value must be paid by the buyer to the exporter before loan repayment starts. Loans may be denominated in main trading currencies and in more than 60 local currencies.
Under the OECD Arrangement, official support may take the form of export credit guarantee or insurance (pure cover), official financing support (direct credit, refinancing or interest-rate support), or a combination. A buyer credit guarantee is pure cover: the bank funds the loan, and the ECA guarantees repayment rather than advancing the principal itself. Arrangement disciplines on down payments, maximum official support and repayment terms apply where Participants give official support with a repayment term of two years or more.
Guarantee versus insurance and supplier credit
A buyer credit guarantee covers the bank's loan to the buyer. Export credit insurance more often covers an exporter's receivable under a supplier credit. UKEF also offers a supplementary Export Insurance Policy for exporters on deals already receiving Buyer Credit Facility support, with cover of up to 95% of potential losses for certain contractual risks. That insurance sits beside the bank guarantee; it does not replace it.