Many small to mid-sized companies want to export, but it can be challenging to find a way to initiate or support international efforts.
“For those companies that are exporting today, sure, it’s great if ... on every one of our exports we could say, ‘Yeah, give us 100 percent cash up front, and then we’ll send you the product,’” says Patrick Hayes, export finance manager with the U.S. Export Assistance Center. “But in today’s world, we know that that’s not how it works, and financing is part of the deal.
“There are cash flow issues. There are also issues of, ‘Hey, am I going to get paid?’ Those are really the two issues that impact small businesses the most.”
Fortunately there is help through The Small Business Administration, which offers loan programs to help companies finance their exporting operations.
The Export Working Capital Program’s philosophy is that a business should not lose a viable export sale due to a lack of capital, says Hayes.
“Simply put, if your business has a deal and it makes sense and we’re pretty sure you’re going to get paid but you’re just having a cash flow issue and your bank is unwilling to lend against that foreign receivable, the SBA wants to step in with the Export Working Capital Program,” he says.
The EXCP will provide your bank with a 90 percent guarantee, so if something were to go wrong, the most the bank would have at risk is 10 percent of the amount lent to you, says Hayes. The maximum SBA-guaranteed portion is $1.5 million, but the gross amount of the loan can be up to $2 million under an arrangement the SBA has with the Export-Import Bank of the United Stats (EM-Im Bank) to co-guarantee the amount.
This SBA loan also can provide a preliminary commitment.
“It would be a situation where you go to your bank and your bank says, ‘We’re not interested in providing this type of export financing,’” says Hayes. “You can then approach the SBA directly, and, if we can do the deal, we’ll issue a preliminary commitment that says we will do that deal. Then, you can take that back to your bank, or any other bank in town for that matter, and say, ‘Look, the SBA has already agreed to process this deal.’”
The loan is characterized as transactional financing.
“We will finance specific transactions,” says Hayes. “Your line of credit can be approved by both the bank and the SBA. However, before you can get any draws on that line of credit, you would first need to have an actual transaction in hand and say, ‘Here’s my $1 million sale to Brazil with my letter of credit or my credit insurance. Now I need to draw on the line of credit to pay my people, to pay suppliers, to produce for this $1 million sale.’”
To qualify for the EWCP, a company must have been in business for at least 12 months or show a proven expertise. It must also meet the SBA’s size standards, which are evaluated on an individual basis, and the SBA must make sure that what the company is selling is, in fact, titled and shipped from the United States.
“We do get many inquires from somebody who wants to pay a supplier in China to make a product and then have that product shipped directly to England, for example,” says Hayes. “Those sales would not qualify for EWCP.”
HOW TO REACH: Small Business Administration, http://www.sba.gov