Framework Credit Cover

Framework credit cover offers protection against payment default if

·         the foreign buyer fails to make payment within one month after due date (protracted default)

·         the foreign buyer becomes insolvent

·         adverse measures taken by foreign governments or warlike events arise

·         local currency amounts are not converted or transferred

Framework credit cover is given by the Federal Government for a framework credit agreement concluded between a lending bank and the foreign borrower (buyer or bank). Object of cover, however, is not the framework credit, but the amounts repayable under the individual covered loans disbursed under the framework credit agreement. A maximum ceiling for which cover will be accepted under framework credit cover is established in advance. The goods to be financed under the individual loans must be capital goods. The order value per single transaction should not exceed EUR 10 million. Framework credit cover is therefore ideally suited for medium/long-term business on credit terms and – considering the maximum permissible order values – it aims in particular at the promotion of SMEs.

Framework credit cover is available to all German banks, including the branch offices of foreign banks in Germany as well as, under certain conditions, also to foreign banks.

If a German exporter was able to obtain only credit terms as payment for his supplies/services, he must always provide financing for the transaction involved. In the event that a framework credit (line of credit) has previously been put in place between a German bank and the foreign buyer for which framework credit cover was already granted by the Federal Government, bank financing will already be at the foreign buyer’s disposal when the sales contract negotiations begin.

Due to the structure of framework credit cover, the amount of administrative work for the bank is considerably smaller than in the case of a conventional buyer credit – and the costs consequently are lower. Also, the bank may be more inclined to provide a buyer credit even if only smaller order values are involved. In that case, a supplier credit will not have to be made available, as would otherwise have been necessary.

The granting of framework credit cover in favour of a bank does not exclude the possibility of issuing separate cover in favour of an exporter. The exporter may, for example, apply for separate cover of his pre-shipment risks (see Product Information Manufacturing risk cover) or of the non-disbursement risk (see Product Information Buyer credit cover).

Taking into account the case-specific circumstances and general underwriting aspects, an appropriate – and prolongable – horizon of risk is fixed for the utilisation of the ceiling established under framework credit cover. Cover for the amounts repayable under the individual loans becomes effective on disbursement of the same. Precondition is, however, that the conclusion of the loan agreement has been duly reported. The Federal Government accepts liability for the loan amounts receivable until they have been repaid in full. The date of expiry of framework credit cover is not relevant in this context.