Medium- and Long-term Financing/Other Medium- and Long-Term Financing Programs
|Unit 8.1-Medium- and Long-term Financing|
Other Medium- and Long-Term Financing Programs
Line of Credit Allocations
International banks with overseas subsidiaries may finance a subsidiary of a multinational company by utilizing the credit facility of the parent company as collateral for the foreign subsidiary. The international bank will transfer an exposure limit to its foreign subsidiary in order to accommodate the credit facility. This process is difficult and assumes the bank of the parent company has a subsidiary branch in the country where the financing is required.
Forfaiting is defined as the discounting of medium-term promissory notes or drafts issued by a foreign buyer. Banks forfait larger transactions over a longer period of time backed by maturing promissory notes. Banks also prefer that the drafts or promissory notes be avalized by the issuing bank, thus providing a guarantee from the avalizing bank. The benefit to the importer is the receipt of a discounted cash payment for the sale with the bank assuming responsibility for the collection of the promissory notes or drafts. Forfaiting is mainly used to finance equipment and relates to specific transactions.