SBA offers guidance, guaranteed loans to small companies that export products

It’s not uncommon for final payment to be made at the end of any project. What’s different in the export industry, however, is that American companies have a harder time getting guaranteed loans to cover expenses until that final payment is received.

Purchase orders are collateral enough for banks to loan companies money needed to complete domestic orders. The problem with foreign orders, however, is that it’s difficult to collect if the company decides to withhold final payment. Legal recourse applies more readily to domestic orders – not foreign.

The U.S. Small Business Administration Export Assistance Center program helps small businesses stay in the export marketplace by standing behind loans. The program covers a substantial amount of the financial risk – up to 90 percent – so banks will be more inclined to lend the capital necessary to cover the export projects.
“Companies need working capital to build equipment they’re exporting,´ said Dennis Chrisbaum, regional manager of the SBA’s International Trade Program. “Most transactions are on credit, and they’ll get paid when deliveries are complete. But companies need money to get the equipment built and to pay salaries in the meantime.”

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The U.S. SBA has three major loan guaranty programs that can assist small business exporters with financing.
Small businesses generally are defined as companies that have fewer than 500 employees.

_ The Export Working Capital Guaranty Program provides working capital loans up to $2 million with a 90 percent guarantee to the lender. The money can be used to finance a single transaction or to set up a 12-month revolving line of credit to finance multiple transactions.

_ The SBA Export Express Program provides loans up to $250,000 with an 85 percent guarantee up to $150,000 and 75 percent guarantee of loans above that amount. Funds can be used for equipment, fixed assts, transaction costs, foreign trade shows, translation services or other working capital needs.

_ The International Trade Loan Program provide guarantees of up to $1.75 million for fixed assets and working capital financing with terms up to 25 years. The money can be used to buy a building, equipment, other fixed assets and as working capital.

Basic qualification for a small company to receive a loan is to have been in business for one year and to be able to show that it’s a solid company.

“We look at credit reports, performance and how the company will get paid,” Chrisbaum said. “I visit the facility and look at how long it will take to build the equipment because we won’t get paid if the company doesn’t perform well.”

He added that the SBA doesn’t fund shipments to certain countries – currently including Iran.
Locally, the SBA covered the first loan of this type in 1995. During the past 11 years, two transactions were fraud.

The SBA program requires that banks monitor the projects and be able to collect the money when the money comes in.

“Banks consider international business to be an additional risk, and we just try to reduce the risk for them,” Chrisbaum added. “We take up to 90 percent of the risk from the lender and take the first lien on assets and transactions. Collateral we require is what’s in transaction – things like the components in the equipment a company is building.

“It’s the first lien – not a blanket lien on the company. Short term and very transactional.”
Paul Ibanez, president of ANCO Engineers Inc. in Boulder, has taken advantage of the SBA loan program three times.

ANCO produces shake tables that test the strength of equipment and buildings under the stress of vibrations such as earthquakes. Sixty percent of ANCO’s clients are foreign.

In 2000, ANCO borrowed $500,000 to build a shake table for Korea; in 2004 the company borrowed $500,000 to build a table for Turkey; and in 2005 it borrowed $300,000 to build a table for Romania.

“We’re a small company – 10 people – and we do six or seven tables each year,” Ibanez said. “The projects come in lumps, but the customers don’t pay the bulk of the bill until we ship the tables. It can take three to nine months to build one.” Each project averages out to cost the customer about $1 million.

“We don’t have the credit ability to get money from a bank, and so it’s been vital to get project financing from the SBA,” he added. “When we ship and get the big payment – we pay the loan off.

“Banks aren’t attracted to the large amount of paperwork it requires for them to do this as well as the overhead,” he added. “It’s a short-term loan, and they won’t make a lot of money on it.

“We have to work to find people who see it as good for our society and our economy to do the loans. We’re small and a higher risk, and banks have to make their business choices so I’m not saying they’re wrong – we all look for ways to make the most profit for the least effort of investment.

“The program’s been a lifesaver for us, and it’s enabled us to do $3 million worth of work and bring the work to Colorado,” he said.

Bruce McGowan, president of Backcountry Access in Boulder, was one of the early recipients of an SBA export loan. Ten years ago his company relied on the program because it was a startup with no track record.
Backcountry Access is a manufacturer and distributor of avalanche safety and backcountry equipment. The company’s transceiver radio transmits information that helps search efforts locate someone buried by an avalanche.

“We got about $100,000, borrowed against our export purchase orders,” McGowan said. “No bank would do that at the time for us.”

The money gave Backcountry Access a working line of credit for one year. After that, the company was able to move on to other types of SBA loan programs to keep producing.

“It’s common to get loans like these with domestic orders by just using the purchase orders as collateral. But even with big, reputable foreign companies, it’s difficult to collect from them if they decide they don’t want to pay.”

Money for the SBA export loans comes from the bigger pool of capital with the U.S. SBA program.

“The amount available is something like $15 billion,” Chrisbaum said. “Customers using that money are paying for the program.”
International trade related Web sites
Getting started

Basic Guide to Exporting
_ http://unzco.com/basicguide/index.html
Trade Information Center
_ http://www.ita.doc.gov/tic
TradePort
_ http://www.tradeport.org
U.S. Department of Commerce’s Portal
_ http://www.export.gov

Market research

U.S. Department of Commerce
_ http://www.export.gov
E-Commerce
_ http://www.export.gov/sellingonline
Foreign Agriculture Service/USDA
_ http://www.fas.usda.gov
MSU-Center for International Business
_ http://globaledge.msu.edu/ibrd/ibrd.asp
U.S. Trade Statistics
_ http://www.export.gov/tradestatistics.html
_ http://www.census.gov/foreign- trade/statistics/index.html
Market development
U.S. Department of Commerce (DOC)
_ http://www.export.gov or http://www.buyUSA.gov
DOC’s International Buyers Program
_ http://www.export.gov/comm_svc/intl_buyer_program.html
Colorado International Trade Office
_ http://www.state.co.us/oed/ito
Colorado Springs Global Advisory Council
_ http://www.coloradospringsinternational.org
Commercial News USA
_ http://export.gov/cnusa/index.html
Denver International Trade Office
_ http://www.denvergov.org/moedit
Federation of International Trade Associations
_ http://www.fita.org/
Global Trade & Technology Network
_ http://www.usgtn.net
Japan External Trade Organization
_ http://www.jetro.go.jp
New Mexico International Trade Office
_ http://www.edd.state.nm.us/TRADE
Thomas Register
_ http://www.thomasregister.com
Utah International Trade Office
_ http://international.utah.gov
World Trade Center Denver
_ http://www.wtcdn.com

Schedule B & Harmonized Schedule Numbers

U.S. Census
_ http://www.census.gov/foreign-trade/schedules/b/
U.S. International Trade Commission
_ http://www.usitc.gov/tata/hts/

Export regulations and standards

ATA Carnets
_ http://www.uscib.org
Bureau of Industry & Security
_ http://www.bis.doc.gov
European Union Regulations and Standards
_ http://www.buyusa.gov/europeanunion
International Organization for Standardization
_ http://www.iso.ch
International Terms of Trade (Incoterms)
_ http://www.iccbooksusa.com/paag.cfm
http://learning.unl.ac.uk/int_purchasing/Incoterms/
Office of Foreign Assets Control
_ http://www.ustreas.gov/ofac
U.S. Customs Service–Importing
_ http://www.customs.ustreas.gov/xp/cgov/import/

Cultural and country information

CIA’s World Factbook
_ http://www.cia.gov/cia/publications/factbook
Country Risk
_ http://home.aigonline.com/home/main/
_ http://www.krollworldwide.com
Country Watch–background information
_ http://www.countrywatch.com
Credit Risk
_ http://www.assessyourinternationalrisk.org/
_ http://www.creditworthy.com/providers/agency.asp?ID=15
Culture Grams
_ http://www.culturegrams.com
Executive Planet
_ http://www.executiveplanet.com
State Department–Country “Background Notes”
_ http://www.state.gov/r/pa/ei/bgn/

Export Legal Assistance

Export Legal Assistance Network
_ http://www.fita.org/elan
U.S. Government Export Finance Programs
Export-Import Bank of the United States
_ http://www.exim.gov
U.S. Small Business Administration
_ http://www.sba.gov/oit

U.S. Government Financing Programs for
Invesment in/or Aid to Developing Countries

Overseas Private Investment Corporation
_ http://www.opic.gov
U.S. Agency for International Development
_ http://www.usaid.gov
U.S. Trade Development Agency
_ http://www.tda.gov

Multilateral Development Banks

Africa Development Bank
_ http://www.afdb.org
Asia Development Bank
_ http://www.adb.org
European Bank for Reconstruction & Develop.
_ http://www.ebrd.org
Inter-America Development Bank
_ http://www.idb.org
World Bank
_ http://www.worldbank.org

SOURCE: DENVER USEAC. Being listed above is not an endorsement by the Denver USEAC, nor the U.S. Government.