by Pru Balatero and Deborah Conrad
U.S. Small Business Administration
Securing export financing is difficult for most
businesses but particularly for small companies.
Several federal financial programs exist for U.S.
exporters in support of their foreign sales. Programs
are often specially designed for small and medium-sized
firms. Assistance includes straightforward loans,
working capital guarantees, and even risk insurance.
The Export-Import Bank of the United States (Ex-Im
Bank) and the U.S. Small Business Administration
(SBA) offer financial assistance to U.S. exporters.
However, there are several other federal programs
for exporters. For instance, the U.S. Department
of Agriculture supports U.S. agricultural sales
overseas through a variety of programs and services.
Also, the Overseas Private Investment Corporation
has a loan program for U.S. firms that invest in
developing countries.
Where
can an exporter find capital to fulfill foreign
trade obligations?
The Ex-Im Bank has an Export Working Capital Guarantee
(EWCG) program that provides U.S. exporters with
working capital to fulfill their foreign trade transactions.
The Ex-Im Bank also has a loan guarantee program
that enables lenders to make loans to foreign buyers,
with the loan proceeds used to pay for specified
products from U.S. firms.
How
does an exporter protect foreign accounts receivable
from governmental and commercial risk?
An exporter can protect his foreign accounts through
the Ex-Im Bank’s foreign credit insurance
program. This allows U.S. firms to insure their
foreign accounts to mitigate foreign financial risk.
Firms using this program are able to offer overseas
buyers credit terms rather than requiring up-front
payment, thereby allowing sales to be more flexible.
How
does the SBA help exporters?
The SBA has three loan guarantee programs for U.S
exporters that are used by lenders: the Export Working
Capital Program, the International Trade Loan program,
and ExportExpress.
What
does the SBA Export Working Capital Program (EWCP)
offer?
This program offers transactional financing to manufacture
or purchase goods or services for export. In other
words, it offers pre-export financing. The program
can also finance transactions when they become accounts
receivable (post-export financing). And, this program
can support standby letters of credit used for bid
or performance bonds. Indirect exporters, such as
suppliers to exporters of record, are also eligible.
What
are the financing terms of the EWCP?
Loan fees and interest rates are negotiated between
the borrower and lender. The EWCP offers a 90-percent
guarantee to lenders for loans up to an SBA guarantee
maximum of $1 million. For loans maturing in 12
months or less, the SBA loan guarantee fee is one-quarter
of 1 percent of the amount guaranteed. This is a
one-time, up-front fee paid by the customer. For
longer maturity periods, the guarantee fee is higher.
The prime collateral is the assignment of proceeds
to the lender of the financed export trade transactions.
These proceeds (buyer payments) are used to self-liquidate
the single deal loan or multiple deals using a revolving
line of credit.
Is
the SBA's EWCP the same as Ex-Im Bank's Export Working
Capital Guarantee (EWCG) program?
The EWCP and the EWCG share many similarities. Like
the EWCG, the SBA’s EWCP is a 90-percent guarantee,
single-sale or revolving line, can involve indirect
exports, and can be used to support standby letters
of credit. Unlike the Ex-Im Bank guarantee, the
EWCP has no restrictions regarding military or U.S.
content and is only bound by the Ex-Im Bank's country
limitation schedule (CLS) with regard to exclusion
note number seven: "support legally prohibited."
The EWCP also can be used for foreign purchase or
contract financing.
What
does this mean to the lender?
This means the lender can use the SBA's EWCP to
enhance its Ex-Im Bank guaranteed line. If the lender
is excluding a foreign military agency’s procurement
for inventory and receivables from the borrowing
base, the lender could use the EWCP to include them.
If the lender is excluding inventory or receivables
from the borrowing base due to U.S. content, the
lender could use the EWCP to include them. If the
lender is excluding inventory or receivables from
the borrowing base due to an Ex-Im Bank CLS requirement,
the lender could use the EWCP to include them. If
the lender's customer has a foreign purchase order
or contract and not enough inventory or receivables
under the borrowing base to support that draw, the
lender could use the EWCP to finance the inventory
and the receivable.
What
does this mean to the lender’s small business
customer?
To the small business customer, it means more availability
under the lines and fewer limits on company growth.
Many lenders already use the SBA's EWCP for their
business banking customers and then switch to Ex-Im
Bank services when customers’ business expands
and internal financing requirements are greater
than the SBA's loan guarantee authority. Some lenders
already use SBA's EWCP to augment their customers'
Ex-Im Bank guaranteed lines.
What
are the basic requirements?
The company must meet the SBA size standard, the
company must be in business at least 12 months or
have proven expertise, and the company's principals
must be U.S. citizens or permanent legal residents.
Why
would an exporter use the International Trade Loan
(ITL) program?
The ITL is a fixed asset-financing program. It is
used to acquire, construct, renovate, modernize,
improve, or expand production facilities, equipment,
or permanent working capital and supplies to be
used in the United States that will be used to expand
existing export markets or develop new export markets.
What
are the ITL financing terms?
For loans up to $150,000, SBA offers an 85-percent
guarantee and for loans between $150,000 and $1
million a 75-percent guarantee. The maximum that
SBA will guarantee to commercial lenders is $1.25
million, in combined working capital and fixed asset
loans.
Can
you explain the SBA ExportExpress loan
program?
The ExportExpress program is relatively
new. Loan proceeds may be used for most business
purposes. For example, loans may provide transaction-specific
financing for overseas orders, provide revolving
lines of credit for export purposes, and finance
export development activities (such as participation
in a foreign trade show or the translation of product
literature for use in foreign markets). These loans
also support standby letters of credit used for
bid or performance bonds. This loan program provides
term loans to acquire, construct, renovate, modernize,
improve, or expand productive facilities or equipment
to be used in the United States in the production
of goods or services involved in international trade.
What
are the financing terms for ExportExpress?
ExportExpress offers an 85-percent loan
guarantee to lenders for loans up to $150,000, and
a 75-percent guarantee for loans over $150,000.
The maximum loan amount is $250,000. ExportExpress
is the SBA's fastest-growing and perhaps most user-friendly
program for lenders for their smaller loans ($250,000
or less).
International trade is an exciting activity. Lenders
and borrowers can benefit from participating in
SBA and Ex-Im Bank loan programs. A successful exporter
often boosts the company's reputation at home and
gains a competitive edge from exposure to overseas
competition.
Pru Balatero and Deborah Conrad are regional
managers of international trade programs for the
Small Business Administration. Pru works at the
Seattle U.S. Export Assistance Center, and Deborah
works at the Baltimore U.S. Export Assistance Center.
For further information and direct assistance, get
in touch with your local U.S. Export Assistance
Center for the SBA international trade finance officer.
For a list of these contacts, visit www.sba.gov/oit.
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