Exporters bank on SBA's working capital program

Business America, May, 1996 by Eileen Cassidy

"We were stuck." That's how William Hord describes his company's predicament. Business was booming at Intamar Logistics, Inc. of Blue Bell, Pa., a manufacturer and distributor of protective clothing for pilots and medical personnel. But Intamar's access to capital couldn't keep pace with the company's rapid growth.

Intamar, like many small businesses, was unable to finance its growing export business through its a conventional bank. Unable, that is, until it turned to the U.S. Small Business Administration for help.

"We had no means of financing our export contracts. We had to rely on the existing cash of the company," said Hord, Intamar's president.

It was Hord's lender, CoreStates Bank (formerly Meridian Bank), that first told him about the SBA's Export Working Capital Program. The SBA's guarantee gave the bank the comfort level it needed to extend the credit.

Under the EWCP, the SBA guarantees up to 75 percent of an export working capital loan, or $750,000, whichever is less. The guarantee can go as high as 80 percent on loans of $100,000 or less.

"Without [the EWCP], we never would have been able to grow, and I doubt we would have survived," Hord acknowledged. The working capital program makes exports easy and not so terrifying for small companies."

Intamar found it extremely difficult to finance both an export letter of credit, and the materials and labor for exports through a conventional bank. The EWCP can help with both short-term needs. The program covers pre-shipment working capital, post-shipment exposure or a combination of the two.

A pre-shipment guarantee covers exporter performance and is used to finance the production or acquisition of export goods or services. A post-shipment guarantee covers buyer payment risks and is used to finance receivables from export sales.

An EWCP loan can support a single transaction or multiple transactions under a line of credit. The maturity on a single-order loan is set to fit the specific transaction. The term on a line is generally one year.

Intamar received a $450,000 line of credit under the EWCP and has used the program to grow its business. The 65-employee company exports to 30 countries around the world and attributes over 50 percent of its sales to exports.

"Frankly, because of this one program, we were able to grow the company to its current sales of almost $7 million," Hord stated.

EWCP loans are transaction-based. The primary repayment source is the collateral associated with the export deal(s). When reviewing an EWCP application, the SBA considers the viability of each transaction, the ability of the exporter to perform, and the reliability of the repayment sources.

The SBA is looking at several changes to the EWCP to increase lender participation in the program and to make it even easier for small business exporters to secure the smaller loan amounts they often need. -- The EWCP is delivered through the SBA's network of 69 district offices and the 15 U.S. Export Assistance Centers nationwide. USEACs combine the resources of the SBA, the U.S. Department of Commerce, and other federal, state and private partners in single locations. To extend our reach and improve delivery, the SBA also has designated 26 public/private partners as EWCP intermediaries and loan packagers.

George Kast, another small business owner, learned about the EWCP during a visit with the SBA's specialist at the Denver USEAC. Kast, president of Psychrometric Systems, Inc. (PSI) of Lakewood, Colo., was having trouble finding a banker willing to extend credit for working capital. He applied directly to the SBA for a preliminary commitment. The PC, good for 60 days, states that the SBA will provide the guarantee under the specified terms and conditions.

With the PC, Kast was able to convince his lender, Norwest Bank Colorado, to extend the 550,000 line of credit. PSI, which custom designs and builds industrial cooling towers, also has a term loan under the SBA's regular 7(a) business loan guarantee program.

"Our access to expansion loans and working capital was restrictive," Kast said. "We're using both the 7(a) loan and the export line to profitably grow our business."

The EWCP has allowed PSI to double its export sales, which jumped from $2 million in 1994 to $4 million in 1995. Total sales for this 92-employee firm are up to $19 million.

"There are timing issues on the working capital side of the business. Even if we have a guaranteed letter of credit, the export line is helpful," Kast said.

PSI also used U.S. Department of Commerce programs to help grow its exports. Commerce's U.S. Commercial Service advised Kast on doing business in Japan and put him in touch with commercial officers in Tokyo. The result: a large contract to supply a cooling tower to a major electric utility company in Japan. PSI believes it will be the first non-Japanese company to supply a cooling tower to a Japanese utility.

The SBA and U.S. Commercial Service offer a range of programs to respond to exporters' financing and information needs. For more information on federal programs, call the USEAC nearest you ORL-800-USA-TRADE. To learn more about the EWCP or the SBA's other counseling and financial programs, contact your nearest SBA district office or USEAC, or call 1-(800) 8-ASK-SBA.