How can it help me?
Buyer finance can help you to compete effectively for export contracts by enabling your overseas buyer to purchase your goods or services.
What is it?
Buyer finance is a loan made available to your buyer so that they can purchase your goods or services. The buyer’s ability to get a loan—from a financial institution in Australia, their own country or a third country—might be critical to the deal going ahead.
Buyer finance loans are often a medium- to long-term financing solution for buyers to buy capital goods or for large projects.
How does it work?
Finance for your overseas buyer can take the form of a direct loan from a bank or other financial institution to your buyer. The loan may cover all or part of the export contract value. At your buyer’s direction, the lender may provide funds to you as export contract payments. Your buyer makes loan repayments to the lender in accordance with the loan agreement.
Sometimes a bank may be unwilling to lend to your overseas buyer—especially in risky or developing markets—unless the bank can share the buyer’s loan default risk with others. For example, another financial institution may be willing to give a guarantee to the lender to cover some or all of your buyer’s payment obligations in the event of a default under the loan agreement. Once the loan and guarantee are in place, the lender (at the buyer’s direction) may advance the loan funds to you as export contract payments. Your buyer then repays the lender in accordance with the loan agreement.
The diagram below shows a typical direct loan with a guarantee.
Notes to diagram
- You enter into an export contract with your overseas buyer.
- Your buyer enters into a loan agreement with the lending bank.
- The guarantor bank issues a guarantee to the lending bank for the repayment obligations of the buyer under the loan agreement.
- Your buyer and the guarantor bank enter into a recourse agreement which requires the buyer to reimburse the guarantor bank for any payments made by the guarantor bank under the guarantee.
- You provide goods or services in accordance with the export contract.
- The lending bank pays you in accordance with the buyer’s instructions.
- Your buyer repays the lending bank in accordance with the terms of the loan agreement.
If there is no guarantee, steps 3 and 4 do not apply.
What are the pros and cons?
| Pros |
Cons |
| May enhance your ability to win contracts by allowing your buyer to access finance to purchase your products or services |
You may be exposed to a risk of non-payment if your buyer doesn’t instruct the bank to draw down the loan in order to pay you or if the bank and/or the guarantor don’t approve drawdown |
| May help you compete with other suppliers offering buyer finance packages |
Your buyer may face a lengthy loan approval and documentation process |
| You can receive export contract payments as you perform the contract and your buyer benefits from the extended payment terms of the loan agreement |
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| A loan guarantee may help you gain access to risky or developing markets by giving support to finance for your buyer. A guarantee may also be helpful when your buyer requires large sums and/or extended payment terms (for example, two years or more) |
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What costs are involved?
Your buyer normally pays the fees and charges, including interest, for the loan and (where applicable) the loan guarantee. Those fees and charges depend on factors including the lender’s (and guarantor’s) risk assessment, the term of the loan and the buyer’s security for the loan.
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