Tuesday, May 12, 2009

EDC ready to guarantee $1B in domestic loans

Export Development Canada expects to back up to $1 billion worth of domestic business this year, the Crown corporation said Friday.

While it normally supports exporters, the 2009 federal budget gave Export Development Canada (EDC) a two-year mandate to aid domestic deals.

The corporation plans to fully guarantee some loans made by lenders to Canadian companies, which means the borrowers will not use up any of their allotment of credit from the lender.

This will give the borrowers more room to use their credit for other activities, EDC said.

The EDC website says the domestic program will be aimed at creditworthy companies in trade-related sectors, which could include:

Transportation.Extractive industries.Resources.Light manufacturing.Information and communications technology.Infrastructure.Environment.

Some sectors, such as retail, wholesale, tourism, entertainment and real estate, are not eligible for domestic financing, the website says.

EDC backed more than $4.2 billion in contract guarantee business last year by partnering with banks, "so our approach to the domestic market is easily transferable," Pierre Gignac, senior vice-president, insurance, said in a news release.

The support should be available immediately, he said.

Guarantees free up borrowing power

Companies are often required to provide a letter from a bank guaranteeing that they can fulfill a contract. The bank, in turn, wants collateral from the company to support the letter, which uses up the company's credit limit.

As the company nears its limit, its borrowing is restricted, crimping its activities, especially when credit is tight, as it is now.

The EDC guarantee of 100 per cent of the loan allows the bank to forgo the collateral it usually requires. That frees up the company to use its credit for other activities.

The EDC said its domestic guarantee program reflects what the government asked it to do, and follows talks with lenders.

The corporation is also working with commercial insurance companies to increase access to credit for Canadian companies.

EDC, a Crown corporation owned by the government, is financially self-sustaining. It is used by more than 8,300 Canadian companies and their customers in up to 200 markets a year.