Legal aspects of concluding an export credit agreement

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Sakharuk Anatolii

Lawyer

Ukraine / Kyiv

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Publication date: 29.07.2024

Legal aspects of concluding an export credit agreement

Concluding an export credit agreement is an important tool for supporting exporters and developing foreign economic activity. Export operations often require significant financial resources for production, logistics and marketing in international markets. In this article, we will consider the legal aspects of concluding an export credit agreement, the main terms and requirements for such an agreement, as well as tips for exporters and lenders.

Basic concepts and terms

Export crediting is the process of providing financial resources to exporters for foreign economic activity. An exporter is a legal entity or individual who exports goods or services outside the country. A creditor is a legal entity or individual that provides credit resources to an exporter to finance export operations.

Legal basis for export crediting

Lending for export operations is governed by the Civil Code of Ukraine, in particular Articles 1054-1067 (on loan agreements), as well as other regulations. The legislation stipulates the requirements for the execution of a loan agreement, the rights and obligations of the parties, the debt collection procedure, etc. It is also important to take into account international agreements and rules governing foreign economic activity.

Rights and obligations of the parties

The rights and obligations of the parties are set out in the loan agreement. The lender has the right to demand timely repayment of the loan and payment of interest, as well as to take measures to collect the debt in case of breach of the contract. The exporter is obliged to use the credit funds for their intended purpose, repay the loan and pay interest in a timely manner.

Key terms of the loan agreement

The key terms of a loan agreement include the loan amount, repayment period, interest rate, payment schedule, loan collateral, rights and obligations of the parties, and liability for default. It is important to carefully review all the terms of the agreement and make sure they comply with the law.

The procedure for concluding a loan agreement

The procedure for entering into a loan agreement includes several stages: preparation of documents, negotiations with the lender, approval of the terms of the agreement, signing the agreement, and registration of collateral (if applicable). At each stage, it is important to comply with the law and the terms of the agreement to avoid additional complications.

Preparation of documents

Preparation of documents is an important stage of concluding a loan agreement. The exporter must provide the lender with the necessary documents, such as: 

• Business plan
• Financial statements
• Charter documents
• Loan collateral, etc

It is important to ensure the completeness and authenticity of the documents provided.

Negotiations with the lender

Negotiations with the lender help to agree on the terms of the loan agreement and find compromise solutions. During the negotiations, the parties can discuss the loan amount, repayment period, interest rate, loan collateral, possible risks and options for minimizing them. It is important to reach mutually beneficial terms of the agreement.

Approval of the terms of the agreement

After reaching an agreement during the negotiations, the parties must approve the terms of the loan agreement. This includes drafting the agreement, reviewing it and agreeing on all the details. It is important to make sure that all the terms of the contract comply with the law and the interests of both parties.

Signing the contract

The signing of the contract is the formal completion of the contracting process. The agreement is signed by the authorized representatives of the parties and comes into force from the moment of signing or within the period specified in the agreement. It is important to keep copies of the signed agreement and other supporting documents.

Registration of collateral

If the loan agreement provides for collateral, such collateral must be registered with the relevant authorities. This may include registration of a pledge of immovable or movable property, a third-party guarantee, a bank guarantee, etc. The registration of collateral provides additional guarantees to the creditor in case of default by the exporter. 

Liability for failure to fulfill obligations

Liability for failure to fulfill obligations is determined by the loan agreement and Ukrainian legislation. It may include fines, penalties, and damages. In the event of default, the lender has the right to demand early repayment of the loan, as well as to apply interim measures and go to court.

Loan collateral

Loan collateral is an important element of a loan agreement that helps reduce risks for the lender. Collateral may be in the form of a pledge of immovable or movable property, a third-party guarantee, or a bank guarantee. The collateral provides additional guarantees to the creditor in case of default by the exporter.

1. Analysis of the exporter's financial condition
   Analysis of the exporter's financial condition is an important step in the process of concluding a loan agreement. The lender has to assess the exporter's financial capacity to repay the loan. This includes analysis of financial statements, business plan, market prospects, competitive environment, etc. It is important to ensure that the analysis is objective and complete.
    
2. Risk Assessment
   Risk assessment is an integral part of the export credit process. The lender must identify possible risks associated with the loan and develop measures to minimize them. This may include loan collateral, insurance, monitoring of the exporter's financial condition, restrictions on the use of credit funds, etc.
    
3. Credit risk insurance
   Credit risk insurance is an important risk mitigation tool for the lender. The lender can insure its risks with insurance companies specializing in credit insurance. This helps to protect the creditor from possible losses in case of default by the exporter.
    

Monitoring the fulfillment of obligations

Monitoring the exporter's fulfillment of obligations helps to identify and respond to problems in a timely manner. The lender should regularly check the exporter's financial condition, compliance with the terms of the agreement, and the use of credit funds for the intended purpose. This helps to prevent arrears and ensure fulfillment of obligations.

Negotiating debt restructuring

In case of financial difficulties, the parties may consider debt restructuring. This involves changing the terms of the loan agreement, such as loan repayment terms, interest rate, payment schedule, etc. Negotiations on debt restructuring help to find a compromise solution and avoid litigation.

The role of a lawyer in the process of concluding a loan agreement

A lawyer plays a key role in the process of concluding a loan agreement. He or she helps prepare the necessary documents, analyzes the terms of the agreement, represents the parties during negotiations, and ensures that the agreement complies with the law. Consulting a qualified lawyer helps to avoid legal mistakes and ensure the successful conclusion of the contract.

International experience in export crediting

International experience in export credit can be useful for improving the national credit system. Many countries have effective mechanisms to support exporters, such as government programs, export credit agencies, venture capital funds, incubators, and accelerators. Studying international experience helps to introduce new tools and practices in Ukraine.