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SBA and Exporting: The Entire World Is Your Borrower’s Customer

August 31, 2015

SBA and Exporting: The Entire World Is Your Borrower’s Customer 

Walterby Walter McLaughlin
Coleman Report Contributor
Senior Vice President
Banner Bank

It’s a well-known fact that the Small Business Administration is on the leading edge of facilitating access to capital for America’s small businesses. What’s less publicized is that the SBA has attractive programs that offer its highest guaranty — 90% — designed to promote exporting and greatly reduce the risk lenders face with respect to trade finance.

When the U.S. Small Business Administration was founded in 1953, the world was much smaller place. A Baby Ruth bar cost a nickel, doctors made house calls, and practically everyone lived, worked and shopped locally. If you couldn’t walk there, you hopped into your muscle car to get places, and man did that engine rumble. Good thing gas cost just 22 cents a gallon.

Fast forward to today. With technological advances in communication and transportation and the fact that exporting is on every politician’s short list of favorite words, the world has grown tremendously in terms of the ability for American businesses to reach a much larger audience. That’s a good thing, as it means there is now a nearly unlimited market available to your small business client.

Doing business internationally, however, entails its own unique set of risks. How do small businesses obtain the capital they need to sell their goods in another country when they face hesitancy on the part of U.S. lenders who typically shy away from using foreign receivables and inventory as collateral?

Enter the SBA.

The bread-and-butter of the SBA’s export facilities are the Export Express, the International Trade Loan and the Export Working Capital Program. The following is a quick overview of each:

Export Express: This loan is basically a supercharged SBA Express. Its key enhancements include the loan size (maximum $500,000) and guaranty percentage (90% up to $350,000, and 75% up to $500,000). The applicant must have been in operation for at least a year, exporting must be facilitated in one of nine ways listed in the SOP and the applicant must provide a succinct export plan with a foreign sales target and supporting explanation. Otherwise, the processes are essentially identical to a standard SBA Express.
International Trade Loan (ITL): The ITL is a 7(a) loan on steroids. Like Export Express, it must be used, at least in part, to benefit the borrower’s exporting efforts . Any type of 7(a) purpose outside of change of ownership can qualify, provided the lender justifies how exporting will be enhanced or promoted. Furthermore, even if the business has just a small number of exports or is planning to get into exporting (again, a short export business plan is required), it can qualify for ITL’s robust 90% guaranty. The maximum loan size is $5 million.
Export Working Capital Loan (EWCP): EWCP loans are used to finance a single or multiple transactions, working capital needs or to back standby letters of credit, all related to export transactions. Unlike the Export Express where a minimum of 70% of the proceeds must support exporting, the EWCP requires 100% of the proceeds to benefit exportation. The Export Working Capital Program provides export lines up to $5 million and is unique in that lenders work directly with a local SBA export specialist when obtaining SBA’s approval.

Jeff Deiss, SBA’s International Trade Manager for the Western U.S. and the facilitator of its upcoming West Coast Export Lender’s Roundtable on September 18th in Los Angeles, says the following:

I think the word “export” sometimes scares away lenders; they think SBA export programs only apply to highly arcane international transactions. Sure, SBA export programs can help with those kinds of deals, but most export loans boil down to simply asking the borrower, “Do you have any foreign buyers (Remember, Canada is a foreign country)?” If the answer is “Yes,” just getting that part of the borrower’s business plan documented unlocks a 90% guarantee from which everyone benefits. The SBA wants to be sure companies that export can get the financing they need, even if exporting is just a small part of their business.

SBA has come a long way from its early years. We can’t go back to 1953 when candy cost a few pennies, but all in all, we really don’t want to. Nickel candy bars would surely wreak havoc on the waistline.

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