Trade knowledge / Need Export Finance Help? Use an SBA Export Loan Program!
Date: 2017-05-18
Need Export Finance Help? Use an SBA Export Loan Program!
Savvy entrepreneurs say, "An order is a gift. Getting paid is business." Putting money into the company till is generally a bit more difficult, risky and time consuming in foreign sales transactions than domestic business transactions because your customer could be 10,000 miles away. This is one of the reasons why some companies hesitate to try exporting.
But there is good news. Exporters can reduce cash flow stress and minimize financial risks plus have access to financial assistance while the transaction is a work in progress or in transit to the overseas consumer.
But there is good news. Exporters can reduce cash flow stress and minimize financial risks plus have access to financial assistance while the transaction is a work in progress or in transit to the overseas consumer.
The U.S. government has programs especially earmarked for small companies who want and need financial support to begin exporting or grow their existing exports. These companies need to have financial backing readily available to assure that they get paid. Countries such as France, Canada, Australia, Japan, Finland, UK and others provide financial backing programs to support their exporters.
So why don't more U.S. companies give exports a try and take advantage of the U.S. government export finance programs? Perhaps the easy answer to this question is: "We didn't know that financial programs are available to help us export."
In the U.S. domestic market, you probably sell on open account; if not, you want cash in advance. These methods are not commonly used in exporting. Foreign buyers expect to pay only when the goods arrive, or even later; but usually not in advance. Open account terms on export orders are usually too precarious for small- and medium-sized exporters to take undue risks. As an exporter, you want to be cost competitive but still need the money right away. If your buyer is on the other side of the world, what can you do to make sure you get paid?
International trade creates particular payment challenges for exporters. It usually takes longer to get paid compared to doing business domestically. Incidentally, small and medium exporters in other countries have the same problems and concerns, but they successfully pursue exports anyway with the assistance of their respective government programs. Universal statistics indicate that the later you receive payment, the higher the risk of non-payment and the greater the strain on your working capital. This means that protecting against non-payment is a key concern for exporters.
The U.S. Small Business Administration (SBA) has three loan guaranty programs to help small businesses access the capital needed to provide goods and services to the global marketplace. Lenders participating in SBA loan programs are able to make loans on terms and conditions that would otherwise be unavailable to help small and medium companies export. The three programs are:
1. International Trade Loan
2. Export Express
3. Export Working Capital
A brief description of each of these programs is given below and indicates the scope and flexibility that exporters have to choose from.
International Trade Loan Program
This program provides small businesses with enhanced export financing options for their export transactions. It is designed to help small businesses enter and expand their international markets and, when adversely affected by import competition, make the investments necessary to better compete.
Export Express Program
This program provides working capital and/or fixed asset financing for companies that will begin or expand exporting. Export transactions (including support for standby letters of credit), export development expenses (including trade show participation), and translation of product literature are a few of the items covered.
Export Working Capital Program
This assistance provides financing to support export orders or the export transaction cycle, from purchase order to final payment. Raw materials, inventory, labor and the resulting foreign accounts receivable and overhead costs incurred to fulfill an export sales order are a few of the qualifying uses under the Export Working Capital Program (EWCP).
Most banks in the U.S. do not provide working capital advances on export orders, export receivables, or letters of credit. Because of that, some small businesses may lack necessary export working capital to support their export sales. That is where an SBA program can make the difference. SBA provides lenders with up to a 90% guaranty on export loans as a credit enhancement, so that the lenders will make the necessary export working capital available.
Exporters can apply for EWCP loans in advance of finalizing an export sale or contract. With an approved EWCP loan in place, exporters have greater flexibility in negotiating export payment terms—secure in the assurance that adequate financing will be in place when the export order is received.
The SBA has international trade and finance managers at U.S. Export Assistance Centers who can advise you about SBA export finance assistance programs. Since 2008, the SBA has approved over $2.2 billion in small business export loans. Now is a good time for U.S. small businesses to start or expand their export business, so look into the financial assistance programs offered by the SBA.
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