SBA's new trends in trade finance

Business America, Oct, 1997 by Eileen Cassidy

The U.S. Small Business Administration (SBA) has developed effective and innovative trade finance instruments as part of the agency's efforts to encourage small business growth through exporting. The SBA has added crucial international tools to the agency's financial assistance toolbox -- this means access to export capital for America's small business exporters.

The SBA's Export Working Capital Program (EWCP) loan guaranty was developed to provide short-term, transaction-specific financing for small businesses that need export financing for their export deals. Typically, this program helps exporters to purchase inventory or raw materials, to manufacture or to market exports. The program guarantees 90 percent or $750,000, whichever is less. It offers exporters preliminary commitments (PCs) that encourage lenders to provide credit. With the EWCP, loan maturities are generally for 12 months, but can be up to 36 months. At the end of 36 months, a borrower may reapply for a new guarantee. The program has grown steadily -- as have the success stories of satisfied customers.

Since its redesign in late 1994, the SBA has increased EWCP loan volume by 250 percent. In fiscal year 1995 the agency provided 212 EWCP loans, valued at $73.3 million. During fiscal year 1996, SBA assisted small business exporters with 271 EWCP loans worth more than $97 million. And as of July 1997, the SBA has assisted small business exporters with 287 EWCPs for more than $98.5 million. The average size of EWCP requested by small business exporters has been in the $350,000 range. All this means more assistance to more small business exporters. (Please see Figure 1.)

Why the EWCP? When a small business exporter is competing for export orders, it needs financing fast. At the SBA, we understand that. Here's what sets us apart:

/ Simplified procedures. The EWCP application form is one page, plus supporting documentation.

/ Quick turnaround. The SBA's turnaround is fast, generally within 10 days or less.

/ Direct access. The small business owner can apply directly to the SBA for a preliminary commitment enabling easier access to lenders.

/ Vast lender network. The SBA works with more than 7,000 lenders nationwide, including non-bank lenders. Over 200 experienced export lenders participate in the EWCP, some of whom have special approval authority under the EWCP, which means even faster turnaround.

/ Flexible terms. The small business borrower negotiates terms with the lender.

/ Low fees. The SBA offers a low guaranty fee of 0.25 percent to lenders for loans of one year or less.

/ Loan packaging. The SBA also has a nationwide network of partners and intermediaries to help the exporter develop and complete the EWCP loan package.

/ Expertise. The SBA has nearly 45 years of experience with small business customers.

/ Personalized service. The SBA has experts around the country to help the exporter structure a winning deal.

The SBA has seen the positive effects of this program from all comers of the United States. (See Figure 2.). The SBA's customers prove that you don't have to be big to succeed in international markets.

Aster International of Cambridge, Mass., sells giftware and decorative items. The company employs six. Like many small enterprises, Aster was encountering problems in financing its export deals, especially because of cash flow problems created by the payment cycle. For this reason the company's owner, Leah Zveglich, applied for an SBA Export Working Capital Program (EWCP) loan. Zveglich stated, I could not have succeeded without the assistance I received. I would also like to encourage others to export -- even on a small scale. There is enough market for small amounts, too! Aster international received a $150,000 EWCP guaranteed line of credit through the Boston U.S. Export Assistance Center (USEAC). The company's export sales at the close of fiscal year 1996 were approximately $500,000, and these sales represent about 99 percent of this small business's total sales. Aster International exports to South Korea, Japan and Taiwan.

B.G. Imaging Specialties of Bronx, N.Y., sells pre-owned diagnostic imaging equipment. The company has been in business since 1986 and has 25 employees. The company needed working capital to finance its purchasing and collection of receivables. B.G. Imaging turned to the SBA's EWCP and the New York USEAC. Stan Propie, director of the firm, stated, "This is a wonderful program for us. It gives us the ability to finance our export business cycle and extend some terms to our good foreign customers. W,e are grateful to the SBA and Marine Midland Bank." The company has a $500,000 EWCP and is applying for a renewal in the amount of $700,000. B.G. Imaging Specialties exports to more than a dozen countries and these export sales have become more than 95 percent of its business, with a dollar value of approximately $3 million. B.G. Imaging became the SBA's 1997 District, State and Regional Exporter of the Year.