As international trade becomes increasingly important to companies of all sizes, it is essential that small and medium-sized companies look for and take advantage of the capabilities their banks have to compete.
“Just like within the U.S. economy, small-to medium-sized businesses are the backbone of international trade,” says Bart Brown, principal business relationship manager with Wells Fargo Bank. “Many banks, including the large ones, don’t go after this market or provide some of the technology that would help their customers engage in international trade.”
Smart Business asked Brown how banks can help smaller business stay even with the larger ones.
What has helped the small-business owner the most?
The drop in communication costs and the advent of the Internet has made foreign markets available to small and mediumsized businesses in a way that it wasn’t before. Now, any business can advertise itself on the Internet to a global audience, and sophisticated search engines help buyers and sellers find one another easily. The old method of attending trade shows and making expensive trips, while certainly successful, is often out of reach, pricewise, for many smaller companies.
In turn, this has driven a need in the small-business segment of the market for banks to develop international expertise in those areas necessary to support their customers. Up to now, that client base has been tapped into by small, boutique, mostly Asian-owned banks. International trade is a way of life for most markets outside the U.S. and their banks long ago developed an expertise in servicing that need. However, the major U.S. banks, the top 10 or 20, really haven’t taken their international trade capabilities down market, even though they have the capability.
What should a company look for when choosing a bank to help them grow internationally?
There’s basically six issues. The first is the bank should have in-house experts who can provide advice and counsel. People who have dealt with international trade issues, methods of payment, etc., and who can help the company navigate through the risks of international trade.
Secondly, the bank should have a broad correspondent bank base. They need to have relationships with many foreign banks so that when their client’s customer or vendor wants to route a transaction into the bank, it comes through directly rather than through two or three other banks, which results in additional costs and, possibly, delays. There is no international clearing bank like the Federal Reserve in the U.S., so the ability to route transactions internationally is dependent on correspondent bank relationships.
Third, the bank must be large enough so that international banks recognize its letters of credit. There is a whole cottage industry of larger banks that act as upstream correspondents for smaller banks, adding further costs to the transaction. A company needs to find a bank that’s sufficiently known overseas so that their transactions can arrive expeditiously and cost effectively.
Fourth, the bank needs expertise in the various government programs that are available to assist smaller importers and exporters, under either the Small Business Administration (SBA) or the Export-Import Bank (EXIM). Many banks have what is called Delegated Lender Status with these agencies, which helps streamline the approval process. A bank that doesn’t have this authority will have to go out and get every transaction approved by the SBA or EXIM Bank as opposed to a Delegated Lender that can say, ‘All right, we’ve approved you, here’s the paperwork.’ It leads to a tremendous savings in time and money.
The fifth issue whether the bank has foreign exchange capabilities. Whether importing or exporting, there can be advantages to a U.S. company in offering to purchase or sell in the customer/vendors local currency. At the end of the day, someone is hedging the transaction, either you or your customer/vendor. So use it to your advantage. Your bank should be able to deal in a broad array of the major/minor trading currencies on both a ‘spot’ or immediate basis or a ‘forward’ or future value basis.
Finally, the bank should have a local support network. A lot of the larger banks have gone to centralized processing of transactions so that clients are always making a call out of state, as opposed to a bank that has support in the area and the market where you do business. Exporters in particular benefit from this approach as there tends to be more hand-holding required on export transactions.
BART BROWN is principal business relationship manager with Wells Fargo Bank. Reach him at (713) 319-1764 or Bart.Brown@wellsfargo.com.