Export Financing
There is a huge push in this country to increase the level of exports out of the U.S. In fact, in an attempt to bolster job creation, the current administration signed the National Export Initiative (NEI) with the goal of doubling exports in this country.
What this means to small businesses is that those companies that currently export but want to increase their efforts, those companies that only export to a few countries but want to expand their global reach or those companies that do not currently export products but want to start – could find it easier to do so – easier via less government requirements, more foreign advocacy, increased contact with foreign trade partners and best of all increased access to export financing – all to help your business grow sales.
One of the major provisions of this Executive Order was to increase the Export-Import Bank’s trade finance abilities by twice its 2009 level of $ 21 billion over the next five years. Further, the Export-Import Bank is creating new financial facilities that target and support small and medium sized businesses – to the tune of some $ 2 billion per year.
So, how can a small business pursue this new funding option should the company decide to expand its distribution into oversea markets?
Start with the Small Business Administration (SBA). Not only is the SBA able to provide very relevant information and resources for businesses seeking to export into foreign territories – like rules and regulations of those foreign countries, how to work within U.S.
laws and in opening doors by providing contacts in many nations around the world – but, has developed several small business financing programs:
Export Working Capital Program (EWCP). This program provides guarantees of up to 90% of the loan amount to banks that are willing to finance export orders, export receivables or letter of credit (something that many bank do not like to do – especially given this poor financial market). This means that businesses who can already generate oversea sales can seek to use this program for working capital or expansion capital to either save current export sales, increase business in the foreign markets they currently serve or expand into new global markets.
According to the SBA; “EWCP loans are used for transaction financing.
For example, an EWCP loan will support 100 percent of supplier costs for an export transaction. EWCP loans can also be used to even out cash flow when exporters have negotiated longer sales terms and cannot carry the resulting receivables with their own working capital. The EWCP loan can be a short-term loan for a single contract or in the form of a line of credit that supports ongoing export sales for a period of 12 months.”
Keep in mind that the goods being shipped do not have to originate or be manufactured in/from the United States but must be titled and shipped from here and that exports cannot be sent to countries or regions that the U.S. has imposed trade restrictions.
The maximum credit line or loan under this program is $ 2 million and is only available to businesses with less than 500 employees for manufacturers, less than 100 employees for wholesalers and have been in business for at least one year.
The SBA also offers an Export Express program for small businesses seeking to expand into new export markets. This program provides up to $ 250,000 quickly to businesses in need. In fact, the SBA states that it can, after bank underwriting, provide their response and guarantee in as little as 24 hours (a real benefit to businesses needing immediate capital for new opportunities or to save overseas purchase requests).
The one caveat; “Financing is available for manufacturers, wholesalers, export trading companies and service exporters. Loan applicants must demonstrate that the loan proceeds will enable them to enter a new export market or expand an existing export market. Applicants must have been in business, though not necessarily in exporting, for at least 12 months.”
You can find more information including how to apply on the SBA’s website in their U.S. Export Assistance Center.
With the recent slow down in consumer and business spending in this country, expanding into overseas markets may just be the savior for many small, struggling businesses. While our economy continues to work its way out of the recession, exposure to potential foreign market sales may just help businesses maintain revenue and smooth out current cash flows. Further, when the economy (both foreign and domestic) does rebound, those who already have foothold in global markets will be the businesses that have the greatest opportunities of future success and prosperity in those areas.
Given that many of these new export financing programs and initiatives may not last forever, all small businesses should take advantage of them today!
Joseph Lizio holds a MBA in Finance and Entrepreneurship, is the founder of Business Money Today, has a strong commercial lending background and is regarded as an expert in business and finance.