Financing Solutions for U.S. Exporters

By John P. Joyce

SBA Office of International Trade

Boston U.S. Export Assistance Center

Exporting is not just for large businesses.  In fact, small and medium size companies account for 30% of merchandise exports from the United States.  And New Hampshire companies are doing their part resulting in the State being ranked eleventh in export growth nationally for the first ten months of 2008. 

There are certain issues that must be addressed when exporting, one of which is financing.  The SBA has developed specialized loan programs for exporters to support greater numbers of small businesses in their overseas sales.  Does your company need funding for foreign market development strategies?  Are you wondering how to fund a promising trade mission overseas?  SBA has the answer with SBA Export Express.  This loan guarantee program helps small businesses that have exporting potential, but need funds to cover the initial costs of entering an export market, to buy or produce goods, and/or to provide services, for export.  Export Express has the flexibility to use loan proceeds for most business purposes, both domestic and international, including expansion, equipment purchases, working capital, inventory or real estate acquisitions.  Loan proceeds may also be used to help finance such items as participation in overseas trade shows or trade missions, standard certifications (i.e. CE Mark & ISO 9000) and modifications of a company's website to accommodate export transactions.

Program Requirements

In addition to meeting the normal requirements for an SBA business loan guaranty, applicants must demonstrate that the loan proceeds will enable them to enter a new export market or expand an existing export market.  However, the loan does not have to be used solely for export development.  The company must have been in business operation, though not necessarily in exporting, for at least 12 months.

Where Do I Go To Apply?

Any bank participating in the SBA Express loan program may also use Export Express. A list of authorized lenders can be obtained by contacting your local SBA Office in Concord, NH, or by checking the SBA website: www.sba.gov/nh

Under the SBA Export Express program, a lender uses streamlined and expedited loan review and approval procedures to process SBA guaranteed loans to ensure that all loan applications are processed quickly. SBA allows the lenders to use their own loan analyses, procedures and documentation.  Quick turn-around is assured by centralized processing at SBA's national processing center, providing the lender a response within 36 hours.

The SBA Guaranty

SBA Export Express increases the SBA loan guarantee from 50% (on a domestic SBA Express loan) to either 75% or even 85% (depending on the loan amount).  The objective is to encourage lenders to make loans to small business exporters when they would not do so on their own.  Loans with an Export Express guaranty can be as much as $250,000.

Other Financing Programs

The Export Working Capital Program (EWCP) allows the SBA to provide lenders with an export line of credit up to $2 million with a 90% guaranty!  The EWCP is a line of credit that provides contract financing for export sales.  It can be used for a single transaction or as a revolving line of credit for multiple export sales.  Here are some of the key features of the Export Working Capital Program:

• Covers 100% of your costs up-front for export orders including labor, material, overhead, the purchase of goods for resale or the delivery of services.
  
• Solves cash flow problems by getting you through longer payment cycles often required for foreign orders.
  
• Provides purchase order financing for a single transaction or multiple sales under a revolving line of credit.
  
• Supports stand-by letters of credit by requiring only 25% collateral when needed as performance bonds.
  
• Provides SBA's highest guaranty to a bank (90%) and SBA's lowest guaranty fee of only .25% of the amount guaranteed (e.g: $675. on a $300,000. loan).

Technical Assistance

Small business exporters face unique problems and challenges and there are many very valuable resources available to help meet those challenges and succeed internationally.  In addition to the loan guarantees described above, SBA is a partner in the U.S. Export Assistance Centers network throughout the country.  This combines SBA's financing assistance with the very extensive resources available from the Commercial Service of the U.S. Department of Commerce (with offices in over 80 countries) and the Export Import Bank of the United States.  Other business resources include the NH Small Business Development Center Network and SCORE.  In addition, New Hampshire small business exporters are fortunate to have added assistance available through the NH International Trade Resource Center in Portsmouth.

John Joyce is the International Trade Officer representing the Small Business Administration (SBA) at the U.S. Export Assistance Center in Boston.  He is responsible for directing SBA's international trade assistance program in the six New England states of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont.  As a member of the U.S. Export Assistance Center, John adds export finance assistance to the extensive export marketing programs offered by the Commercial Service of the U.S. Department of Commerce.

John has more than 25 years experience in international business.  Previous to joining SBA, he served as an International Trade Specialist with the U.S. Department of Commerce and has worked in international sales and marketing for several corporations including three years working in Europe. 

QUESTION: How easy is it to get the SBA Export Express loan approved? Is it harder to get this loan in the wake of the credit bubble burst?

ANSWER: Thank you for your question regarding SBA's Export Express program.  SBA guarantees are available to banks with the idea that they will help the banks make loans that would not have been done otherwise.  This is even more important now when, as you point out, the economic crisis seems to have caused a tightening of credit.  The intent is to make it easier for a bank to say "yes".

First, a little background:  the Export Express program is a spin-off of SBA's most popular guaranty program, "SBA Express".  SBA Express gives the banks the freedom to process a loan application just as they would for any application on their own, even using all the bank's forms, etc.  The bank can add SBA's guaranty without any review or processing by SBA.  In return for this ease of use, the banks settle for a lower guaranty of 50%.

Export Express is handled the same way as SBA Express except that, because the loan is intended to help the small business expand export business, the bank receives a higher guaranty.  This is done in order to encourage banks to finance export development.  The higher guaranty is 85% for loans up to $150,000 and 75% for loans between $150,000 and $250,000.  Therefore, if you look at the portion of the loan that is not guaranteed, the bank is reducing it's exposure by at least half by using Export Express compared to regular SBA Express.

I hope this is helpful.  Please feel free to contact me with any questions. 
 

ANSWER: Up until recently, exporting was the bright light of the economy and companies that had established business in foreign markets were able to offset the slowdown in the domestic market.  This illustrated one of the major benefits of exporting: diversifying your markets makes you better able to deal with a downturn in one or another market.  However, as the economic crisis spread, it has had a detrimental effect on U.S. exports as well.

Your questions about where there might be export potential and is it really worth investing in exporting have to be answered in specific terms for individual companies.  I think we should be careful not to paint things with too broad a brush.  That is fine for economists and it certainly acts as a guide, but each company has to evaluate the costs and opportunities specific to its own business situation.

Even if, after specific evaluation, a company decides that the potential for export sales is just not there at this time, it might be a good time to lay the groundwork for the future.  This might involve market research, much of which is free, to determine what markets to concentrate on in the future.  It might even include setting up distributor networks in those markets.  That way, you will be in a position to take advantage of export growth when the economy turns around.

QUESTION: I am doing my post graduation in business. This questions post from my friend to me to get an answer. Will u please get me the correct answer.

GoFresh China (GFC) is a Hong Kong-based company that manufactures
bottled fruit drinks for the Hong Kong and mainland Chinese commercial market.
The company purchases raw fruit, processes and packages it for retail
outlets.  GFC enters into a contract to purchase a consignment of mangoes from a Queensland plantation called Sunny Fruits Inc.  The terms of the contract include the following:

3. Quantity:   50 tonnes of mangoes to be shipped in three consecutive shipments: 

     The first shipment of 20 tonnes to be shipped by 15 January 2009; 
     The second shipment of 20 tonnes to be shipped by 1 March 2009; 
     The third shipment of 10 tonnes to be shipped by 15 May 2009.

4.  Payment is to be made by Direct Telegraphic Transfer of funds from the Hong Kong Shanghai Banking Corporation, Central, Hong Kong, against the sellers submission of documentary proof that each consignment has been loaded on board a seaworthy carrier.  The carrier shall be engaged by the seller at the sellers expense.  All other costs shall be paid by the buyer.

5.  The seller or his agent has the responsibility of advising the loading of
each consignment.  The seller had/or his agent shall also be responsible for the safe delivery of the shipping documents to the Hong Kong Shanghai Banking Corporation, Central Hong Kong.

6.   This contract is governed by the law of Australia.  

Answer the following questions:

a)   Who bears the responsibility for obtaining the Bill of Lading and why?
b)   Are the terms of the contract FOB or CIF or a variation of these?  Explain clearly what these terms mean and any ambiguities.
c)   If after the first consignment arrives at the Port of Melbourne it becomes apparent that the ships refrigeration failed while at sea, where would GFC stand legally?
d)   What rights would the buyer have if any of the consignments were not loaded on time?

ANSWER: Your question is a bit out of my area of expertise.  I will offer unofficial comments in an attempt to be helpful, but your friend in Australia should get local advice.  The fact that the sales agreement in subject to Australian law disqualifies me from the start as an "expert".  The link below is to the Australian Trade Office in Queensland since that is where Sunny Fruits, Inc. is located.

http://www.dfat.gov.au/brisbane/index.html

Now, here is my attempt to help with your questions:

a)  I think the seller is responsible for obtaining the Bill of Lading since you state that the seller (or agent) is responsible for loading the goods and delivery of the shipping docs to HSBC.
b)  From what you say, it seems the terms of payment are C&F, cost and freight.  FOB would not require the seller to pay for shipping and CIF would require the seller to pay for insurance, in addition to shipping.
c)  This is a confusing question.  The produce will be arriving in Hong Kong and probably shipped from Brisbane (since the supplier is in Queensland).  If you mean that GFC realizes such a problem occurred during shipment from Australia to Hong Kong, they would submit a claim on their marine insurance.
d)  The answer to this question depends on the wording of the sales contract and Australian law.