SBA upgrades its financial assistance for small business exporters

Business America, Feb, 1995 by Catherine Funkhouser, Sheldon Snook

The dilemma that one Georgia poultry processor faced would be the envy of many small businesses. Romar International Georgia, Inc., experienced dramatic growth in the volume and size of its export sales. The company's bank, South-Trust Bank of Alabama, had always been able to satisfy Romar's export working capital needs.

But when Romar received a series of large orders from customers in the Middle and Far East, the company - even with Southtrust's help - could not meet its working capital needs. Romar and Southtrust turned to the U.S. Small Business Administration (SBA) for support. With the help of SBA's export working capital program, Romar received an SBA-guaranteed $600,000 line of credit.

Romar, which attributes a percent of its sales to exports, plans to continue expanding its international business. And as Romar's sales grow, the company's working capital needs should grow, too. Romar expects that its future export working capital needs eventually will exceed SBA's guarantee cap, and that the company will graduate to programs offered by other federal agencies.

Romar is just one example of the U.S. Government's renewed commitment to helping more small businesses export. SBA's Export Working Capital Program was created to meet one of the most pressing needs of exporters - financing.

The Problem:

Inadequate Export Finance

Small businesses account for 96 percent of all U.S. exporters, but currently generate only 30 percent of the dollar volume of the nation's exports. These smaller companies represent enormous untapped export growth potential, but they need working capital to meet the potential.

For years, small businesses have turned down or lost export sales because of the lack of available financing. The smaller firm can be strapped for cash when a solid order comes in or their cash reserves can be quickly depleted when additional export orders are received. Too many then can sell only on cash in advance or similar terms that place U.S. exporters at a disadvantage to their overseas competitors. Inadequate financing results not only in reduced international competitiveness and lost exports but, more importantly, lost jobs.

Many smaller firms have difficulty obtaining short-term working capital for specific export sales. Lenders often consider export working capital loan requests to be too small and too risky compared to longer-term domestic loans. Small businesses, collateral can be tied up in already existing long-term loans, so lenders are reluctant to fill short-term needs.

The Solution..

SBA's Export Working

Capital Program

SBA is responding to exporters' financing needs with the new Export Working Capital Program (EWCP). The program offers many advantages for both small businesses and lenders.

SBA modeled the EWCP, in large part, after the state of California's successful export finance program. SBA also has harmonized its program with that of the Export-Import Bank of the United States (Ex-Im Bank).

This harmonization effort was recommended in President Clinton's National Export Strategy, a strategy formulated by the Trade Promotion Coordinating Committee (TPCC) in response to the Export Enhancement Act of

The two agencies got together and tackled some basic questions. How to eliminate confusion and duplication between the two pro@ grams? What to do to increase the programs, efficiency and effectiveness? How to simplify and expedite the application process?

As a result of these discussions, SBA and Ex-Im Bank have divided the export finance market, with SBA handling the smaller loans so that Ex-Im Bank can focus on the larger transactions. The dividing figure - $833,333 - represents the largest loan amount SBA can cover with a 90 percent guarantee.

The new program is designed to make it easier for smaller exporters by giving them access to export financing through SBA offices across the country. And, this access will make it easier for exporters to get help in preparing professional-looking business plans and financial statements, which can be critical to success in landing export financing. Finally, small business exporters who need financing for machinery and equipment in addition to export working capital, as is often the case, can apply for SBA companion loans.

The EWCP now offers small businesses direct access to the SBA. Under the old system, only lenders could request SBA's guarantee. Exporters now can apply directly to SBA for a preliminary commitment (PC). The PC says that SBA will guarantee the loan, providing certain conditions are met. With the PC, the exporter is in a better position to find a lender willing to extend the credit.

Because of the National Export Strategy and resulting harmonization with Ex-Im Bank, we also developed a joint SBA/Ex-Im Bank export working capital loan application form. Exporters can now use a single application for either agency. Other program elements, such as guarantee coverage, and fee and interest rate policies, have been harmonized. Loan maturities are generally for 10 months but may be renewed twice, up to a total of M months. These changes are designed to make it easier for lenders to graduate their customers from SBA to Ex-Im Bank when their customers, financing needs outgrow SBA's limits.