Banks typically exclude export accounts receivable (A/R) and work in progress (WIP) from a company’s borrowing base, which can be challenging for a company with global sales that are rapidly growing or when a single large export order is received.
As a result, Export Working Capital loans were created by the U.S. Small Business Administration (SBA) to allow U.S.-based businesses to have access to a low-cost source of funds that support their international sales and manufacturing cycles.
“Through programs like this, the SBA — a taxpayer-funded federal agency — is putting our tax dollars back into the U.S. economy to promote retaining current jobs or even creating new jobs associated with international sales that otherwise could be won by foreign competitors,” says Arthur G. Rice, vice president and manager, International Operations and Product Management, FirstMerit Bank.
Smart Business spoke with Rice, as well as Romona Davis, vice president and SBA specialist, FirstMerit Bank about how these transactions work to enable small businesses to obtain funds for international sales and operations.
What are some benefits and how do these loans differ from others?
These loans are different from what you might call ‘standard’ operating capital line facilities in that the benefits are focused on international business. Under standard operating line facilities, the borrower is not permitted to include any A/R, WIP or inventory tied to foreign sales into its borrowing base calculations.
This restriction can severely limit the borrower’s ability to have access to sufficient working capital to allow the small business the ability to react quickly to significant market opportunities. These foreign opportunities can be encountered through trade shows, Web sales and foreign distributors. The ability to include foreign A/R, WIP or inventory may allow the small business to jump from 75 to 90 percent advance funding rates.
Who can apply for these loans?
Any for-profit organization whether organized as a corporation, sole proprietor or partnership that meets size standards as a small business can be eligible for the SBA. This program supports both manufacturing and service-oriented organizations and has many applications.
SBA Export Working Capital loans are granted for up to $5 million to fund export transactions from purchase orders to collections. There’s a low guaranty fee and quick processing time. The SBA also has two additional export loan programs — Export Express Loan Program and the International Trade Loan Program.
In addition to supporting ongoing exports, what else can Export Working Capital loans be used for?
Export Working Capital loans not only support your ongoing export business, but also can be used for:
- Issuance of standby letters of credit to support bid bond requests, cash down payments and warranty periods.
- Purchase of raw materials, components, participation at foreign trade shows and general export marketing activities.
- Collection of foreign A/R.
Are there any exclusions or conditions business owners need to keep in mind?
The SBA Export Working Capital Program is quite flexible and able to be utilized for most international sales opportunities. However, products to be exported must be more than 50 percent U.S. content and shipped from the U. S. There also are some specific restrictions based on federal regulations that your lender can make you aware of to help you stay in compliance.
What do you need to get started?
Along with the application and fee, you’ll need at least one year’s worth of financial statements and a brief history of your company, including senior management biographies and pro forma business plans. You also need a clear description of your proposed use of the working capital proceeds.
All opinions expressed herein are those of the authors/sources and do not necessarily reflect the views of FirstMerit Corporation.
Arthur G. Rice is a vice president, manager, International Operations and Product Management, at FirstMerit Bank. Reach him at (330) 384-7178 or email@example.com.
Romona Davis is a vice president, SBA specialist, at FirstMerit Bank. Reach her at (330) 996-6242 or firstname.lastname@example.org.
Learn more about FirstMerit’s International Banking export programs.
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