Financing Operations

Santander offers a wide range of financial products tailored to the needs of each customer and the characteristics of the transaction.

Export Financing/Advances

Description

This is a credit operation in which the bank advances a specific amount, in any officially traded currency, to an exporter so that it can collect the value of deferred-payment sales made to a foreign importer. This process involves three parties:

• Financial institution
• Exporter
• Foreign importer

The financing must always be linked to an export operation.

Process

1. A sales agreement is struck between the Spanish exporter and the foreign importer.
2. The exporter delivers the goods to the foreign importer, who agrees to pay for them on a future date.
3. The financial institution advances the value of the operation to the exporter in local currency, or any other currency.
4. On the agreed expiry date, the importer pays for the purchase.
5. The exporter repays the advance using the importer’s payment.

Length of contract The contract length will normally coincide with the payment deferment given to the importer or the person who receives the service. In the event that the periods differ there are two alternatives:

 - Pre-financing: The bank finances the exporter for the manufacture of the goods.

 - Post-financing (Advance): The bank advances, partly or in full, the value of the operation once the goods have been despatched. Generally the periods involved in this type of operation do not exceed 90 days. It is normally advisable that the period exceeds the expiry of the operation by 10-15 days, owing to delays that may arise with payments from abroad. • Amount The maximum amount that can be financed is the value of the goods plus those costs (shipping, insurance, etc.) that, although borne initially by the exporter, will eventually be reimbursed by the importer. • Currency The currency of the financing/advance may be any officially quoted currency. The currency need not be the one in which the export operation is denominated, although it is advisable for the currencies to be the same to avoid the risk of exchange rate fluctuations. • Repayment Repayment must match the deadline set by the financing/advance, although there is no objection to early repayment, in which case an adjustment to the interest payable would be made. • Interest rate The interest rate used will depend on the currency in which the financing is denominated. • Exchange rate risk When the currencies of the financing/advance and the repayment differ, an exchange rate risk is created to which the exporter may respond in one of two ways: accept it or offset it by taking out exchange rate insurance or a foreign currency option.

Forfaiting: Financing & Credit insurance

Financial institutions use forfaiting, a non-recourse financial product, to offer their exporter-customers the option to sell, without recourse, the commercial credits arising from their exports. In those cases where the importer is declared insolvent, the banking institution cannot reclaim the money from the exporter.

Forfaiting enables the banking institution to offer its exporter-customers the following:

• Collection of payment is guaranteed.
• The exchange and interest rate risk disappear, as the funds are advanced.
• The political and commercial risk of the operation is eradicated.
• It furnishes liquidity.
• It enables the transaction to be removed from the balance sheet.
• It enables more to be sold, or more expensively, by enabling longer credit terms to be offered.

In general terms, this type of operation involves large sums as well as deferred payment, which prompt the seller’s financial institution to ask the bank in the importer’s country to guarantee the operation. This is done via additional guarantees or the underwriting of the bills that are used to pay for the export.

Lines of credit are not granted in forfeiting operations; rather, the financial institutions that offer forfeiting analyze and offer this type of financing on a case-by-case basis.

Financing Imports

Description

With this credit operation, Santander finances the period needed to sell and receive payment for an imported product. As a result, the importer requests financing owing to:

• Insufficient funds to pay on delivery.
• The availability of better purchase prices.

Although similar to a domestic loan, this operation differs in that the payments are used only to pay for imports. This process requires the involvement of three players:

• Financial institution
• Spanish importer
• Foreign exporter

The financing operation must always be linked to the payment of imports.

Process

1. A sales agreement is struck between the importer (customer of the bank) and the foreign exporter.
2. The foreign exporter delivers the goods to the importer.
3. The importer (the bank’s customer) requests financing from their bank so that it can pay the foreign exporter.
4. The importer’s bank pays the foreign exporter.
5. When it expires, the importer (bank customer) repays the financing with the proceeds of the sales.

Characteristics of Import Financing

• Length of contract
  The contract length will coincide with the period needed to sell and collect payment for the imported product. Depending of the product involved, the periods in this type of operation do not normally exceed 90 days.
• Amount
  Up to 100% of the operation, and even more if the purchase is ordered FOB (Incoterm)
• Currency
  The currency used in import financing can be any officially traded currency. It does not necessarily need to coincide with the currency in which the import/export is denominated, although it is advisable for them to be the same.
• Repayment
  Repayment must comply with the deadline set in the import financing.
• Rate of interest
  The rate of interest used will depend on the currency in which the import financing is denominated.
•  Exchange rate risk
  When the currencies of the import financing and the proceeds earned by the importer from selling the goods differ, an exchange rate risk is created; the importer may respond in one of two ways: accept the risk or offset it by taking out exchange insurance or a foreign currency option.

Warranties

Definition:
"Surety" is taken to mean any form of guarantee whereby someone commits to making a payment on behalf of a third party in the event that the latter does not honour its contractual obligations vis-à-vis the beneficiary.

Parties Involved

• Issuer: the bank acting as guarantor.
• Party receiving the surety: the legal entity on behalf of which the bank guarantees to fulfil a specific obligation.
• Beneficiary: the party in favour of whom the surety is provided and in favour of whom the credit institution accepts the contractual payment responsibility of the guaranteed company in the event that the latter fails to honour said responsibility.
• Foreign financial institution: becomes involved only in international sureties, as a notifying party (direct guarantees, in which the beneficiary accepts the guarantee of a bank beyond its own national borders) or as issuer (indirect guarantees, in which the beneficiary prefers a guarantee issued by a local bank).

Varieties

Information to be included in an international guarantee

• Name and address of the guarantor.
• Name and address of the principal or instructing party.
• Name and address of the beneficiary.
• Reason for issuing the guarantee.
• Currency and amount guaranteed.
• Period for which the guarantee is issued.
• Terms and conditions under which the enforcement of the guarantee must be sought.
• The legislation applicable to the guarantee (*).
• Other information that may be considered pertinent.