Exporters often face challenges in financing their businesses that companies with purely domestic operations don’t have to deal with. For one thing, their receivables, and possibly a portion of their inventory and other physical assets, are located abroad. This can make commercial bankers reluctant to lend, especially as overseas assets generally can’t be used as collateral to secure a loan or line of credit. Moreover, buyers in many foreign markets expect — and competitors from other countries will offer — credit, or credit on longer payment terms than we’re accustomed to in the US.
To help keep American businesses competitive in international markets and secure American jobs, the US government has instituted various programs to help American companies finance export operations. Most of these are administered by the Small Business Administration or the Export-Import Bank of the United States (Ex-Im Bank)
Small Business Administration
Under its export programs, the SBA will guarantee up to 90% of export-related loans from eligible commercial banks. Its most important programs for international traders are:
Export Express loan
Unlike most SBA loans, these require no prior approval from the SBA itself. Instead, pre-certified lenders can underwrite loans of up to $500,000 directly. Approval typically takes just a day or two. The SBA guarantee covers 90% of loans up to $350,000 and 75% of bigger amounts.
Export Working Capital loan
This program guarantees loans and revolving lines of credit for up to $5 million with terms of up to 12 months. The funding can be used for working capital to produce goods for export, to finance export receivables, or for standby letters of credit for bid or performance bonds.
International Trade loan
These loans provide long-term financing (up to 10 years) of fixed assets or export working capital up to $5 million. The guarantees are available not only for exporters, but also for companies facing competition from imports.
Export-Import Bank of the United States (Ex-Im Bank)
Ex-Im is a “bank,” but indie businesses may find its insurance products more helpful than direct lending. It does offer loans, but borrowing from a commercial lender with an Ex-Im guarantee often results in a lower total financing cost. Its key programs include:
Working Capital Guarantee
Like the SBA’s similarly named offering, this product protects commercial lenders, generally guaranteeing 90% of the loan amount. The funds can be used to purchase materials and equipment to produce goods for export, to purchase finished products for export, or to post standby letters of credit for performance bonds and the like. Unlike SBA guarantees, there is no maximum transaction amount.
Supply Chain Finance guarantee
This program provides accounts receivable financing for exporters and their domestic suppliers, allowing suppliers to sell their receivables at a discount to accelerate cash flow and improve liquidity.
Export Credit Insurance
Ex-Im Bank’s insurance products cover commercial and political risks of international trade, insuring up to 100% of political risk and 98% of commercial risk. The latter includes the familiar risks of insolvency and non-payment. Political risk refers to eventualities related to the political situation in a foreign market, such as changes in the convertibility of a foreign currency (so a buyer can’t get hold of dollars to pay you with), the buyer being nationalized or otherwise prevented by government action from fulfilling its end of a transaction, or even the outbreak of war. In addition to a range of policies for exporting sellers, Ex-Im Bank also offers Bank Buyer Credit policies, which cover bank loans to foreign buyers, generally for purchases of production equipment and capital goods from US suppliers. Export credit insurance is also offered by a number of private companies, notably Coface.
Direct loans
As mentioned above, Ex-Im Bank also offers direct loans to exporters and foreign buyers.
More information on Ex-Im Bank’s programs, including some more specialized offerings, is available here.
State Trade Expansion Program (STEP)
This is one of my favorite financial resources for exporters because it’s a grant program. Free money! What’s not to love? STEP is funded by the SBA, but for Texas is administered by the state Department of Agriculture. (Applications are not restricted to agricultural businesses.)
The STEP grant program is designed to assist small businesses who are first-time exporters or expanding their export activities. The exported goods must be of US origin. The funds can be used for:
- Participation in trade missions or trade shows
- US Commercial Service export assistance programs
- Export counseling & training
- Shipping of samples
- Website translation & localization
The grants are awarded on a first-come, first served basis and the funds do run out, so be prepared! Applications are currently closed for 2019. Information about grants for 2020 should become available this October, according to the Texas Department of Agriculture. This web page provides more details of the program and a link where you can sign up for e-mail updates.