Financing Small-Business Exporters
Sears, Judith, Independent Banker
New programs help community banks help companies and local economies grow
In his 2010 State of the Union address, President Obama announced a goal of doubling U.S. exports in the next five years. This ambitious goal, he noted, would support 2 million jobs if achieved.
Both community banks and their small-business customers could play an indispensable role in fueling export growth. That's because very small companies- fewer than 20 employees-account for nearly 70 percent of all exporting firms. Small and medium-size enterprises account for nearly 30 percent of the value of U.S. merchandise exports. Services, such as technical writing and architectural services, can also be exported and, therefore, financed.
In short, the "little guys" not only play; they excel at the export game.
Community banks can help their small-business customers tap into fast-growing markets abroad. Banks also can help drive local economic recovery- by enabling small businesses to take larger jobs with an export component, for example. The Export-Import Bank of the United States and the Small Business Administration (SBA) have created programs to help.
According to Ex-Im Bank representatives, there are several benefits for community banks engaged in export financing: expanded portfolio of creditworthy customers; U.S. government loan guarantees, which reduce financing risk; lower reserve requirements, lower capital adequacy requirements or both; and income generated from fees received from some loan programs. In addition, some loans may qualify for Community Reinvestment Act consideration.
Highlights of the Ex-Im Bank's Working Capital Guarantee program are these, says Augustine Grace, the Ex-Im Bank's senior business development officer: It provides a 90 percent guarantee to lenders for export-related working capital loans. It benefits small and medium-sized American companies. Loans can be transaction-specific or revolving, and there's no minimum or maximum loan amount.
Community banks can further enhance their efficiency by seeking "delegated authority," which is a discretionary preapproved credit authority, from the Ex-Im Bank, Grace explains. Delegated authority empowers a community bank to acquire the Ex-Im Bank's guarantee at the time a loan is processed. That cuts red tape, aiding both the bank and its customers.
To qualify for Ex-Im Bank loans, the content of export products, whether materials or labor, must be greater than 50 percent American and not defense related, and the exporter must observe the Ex-Im Bank's country trade restrictions policy.
SBA, in turn, offers smallbusiness loans and lines of credit through its Export Working Capital Program (EWCP). Targeted to small-business exporters to support their export sales, EWCP loans are 90 percent SBA guaranteed, says Richard Ginsburg, SBA senior international trade specialist. As of 2011, the SBA will guarantee up to $3.75 million per loan. Alternatively, SBA's Export Express loans or lines of credit, up to $500,000, help small businesses develop or expand their export markets by, say, providing funds to participate in a trade mission. …