The exporting advantage

Many people would be surprised to
know that the U.S. economy
exceeded growth estimates for the first quarter of 2008, with GDP up 0.9
percent compared to advance estimates
of 0.6 percent. A surge in the exports of
goods and services was the primary reason for this increase. With the U.S. dollar
at record lows against the euro and the
yen, businesses that may not have considered exporting in the past are now seeing
it as an enticing way to increase sales.
Despite the appeal, there are still some
U.S. companies wary of exporting
because of the financial risks.

Smart Business sat down with Alan
Andrews, vice president and manager of
PNC’s global trade and equipment finance
group, to talk about some of the issues
facing exporters and the resources that
are available to help them.

What do companies need to know before they
start exporting?

First, you will want to identify the most
attractive markets for your goods.
Gathering and analyzing information
about the markets you are considering —
current business climate, trends, demographics, cultural issues — may influence
your decision to sell in a certain region.
The U.S. Commercial Service, the government’s primary trade promotion agency,
can help you with this due diligence and
provide you with assistance throughout
the entire export process.

The U.S. Commercial Service gathers
market research and information about
legal and compliance issues specific to
each country and makes this information
available to companies through the U.S.
Government’s export portal,
Additionally, it pre-qualifies buyers and
distributors and improves exporters’
access to working capital loans and facilities development financing through the
U.S. Export-Import Bank (Ex-Im Bank).

What are some of the financial concerns surrounding exporting?

Many exporters spend time developing
leads, but do not think about maintaining enough working capital to support sales.
Approaching your bank about obtaining
credit may be a logical first step. However,
many U.S. banks will not lend against
export sales, including those backed by
letters of credit, unless the loan is guaranteed by the Ex-Im Bank. As the official
export credit agency of the United States,
the Ex-Im Bank guarantees the loans
commercial banks issue to support

Finding a U.S. financial institution that
already has a relationship with the Ex-Im
Bank can be beneficial to exporters, especially if the bank is ‘Fast Track’ certified.
Experienced lenders that qualify for the
Ex-Im Bank’s ‘Fast Track’ program help
U.S. exporters obtain larger working capital loans in less time.

Banks with international trade expertise
usually have foreign exchange consultants who actively trade in emerging market currencies. They will work with your
company’s hedging policy to help minimize currency risk associated with variable international conditions.

What are some of the other risks associated
with selling goods abroad and how can they
be minimized?

Once you have established a financing
plan, you will need to put the tools in
place to mitigate your payment risks.
Letters of credit and documentary collections can mitigate payment risks by obligating the issuing bank to pay the seller
when merchandise has been shipped in
accordance with agreed-upon terms and
conditions. They provide payment security when you are unsure of buyers’ credit
history or you are trading with them for
the first time.

Be sure to ask your bank about any
other risk mitigation techniques they may
have to assess your transactions with a
specific foreign buyer.

This article was prepared for general
information purposes only and is not
intended as legal, tax, accounting or
financial advice or recommendations to
buy or sell currencies or to engage in any
specific transactions, and does not purport to be comprehensive. Under no circumstances should any information contained herein be used or considered as an
offer or a solicitation of an offer to participate in any particular transaction or
strategy. Any reliance upon this information is solely and exclusively at your own
risk. Please consult your own counsel,
accountant or other adviser regarding
your specific situation. Relevant information was from sources deemed reliable.
Such information is not guaranteed as to
its accuracy. Any views expressed herein
are subject to change without notice due to
market conditions and other factors.
© 2008 The PNC Financial Services
Group, Inc. All rights reserved.

ALAN ANDREWS is a vice president and manager of PNC’s Global Trade and Equipment Finance Group, part of The PNC Financial
Services Group, Inc. Reach him at (412) 768-7662 or [email protected]. To learn more about export financing and other aspects
of international trade, check out PNC’s Middle Market Advisory Series at