SBA Export Finance. Agenda Am I in the right room? SBA s Office of International Trade Who are you? Export Solutions for Small Business

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1 SBA Export Finance Export Solutions for Small Business Agenda Am I in the right room? SBA s Office of International Trade Export Customers Financing Exports SBA Export Finance Products SBA and Export-Import Bank Other US Government Export Solutions 2 SBA s Office of International Trade Who are you? 3 1

2 SBA s Office of International Trade What do you do? AFFAIRS POLICY OUTREACH DEVELOPMENT FINANCE Advance SME interests, trade and investment between the United States and foreign countries Ensure that the interests of small businesses are adequately represented in bilateral and multilateral trade negotiations Disseminate information on programs and initiatives to enhance the ability of small businesses to compete in international markets Enhance small businesses ability to export, compete effectively and efficiently against imports, and facilitate technology transfers Increase small businesses access to export related capital 4 Exporters What do they look like? International trade makes up 30 percent of US GDP Ninety-seven percent of exporters are small businesses Small businesses account for 33 percent of US export value Only five percent of small employers export 28 percent of small manufacturing firms 32 percent of small wholesalers 5 Financing Exports What will all this cost? Pre-Shipment Export Expenses Market research International travel and trade show admissions Product modifications for export markets Product line or production capacity expansion Inventory Post-Shipment Export Expenses Accounts receivable insurance Letter of credit fees Management Commitment 6 2

3 Financing Exports If I offer terms, how do I get paid? HI Seller Risk LO Open Account Seller ships the products and buyer pays when the shipment clears customs in the foreign country Documentary Collection Shipping documents are sent to a bank. Buyer pays and documents are released. Letter of Credit Foreign bank agrees to pay if the seller meets agreed conditions Confirmed Letter of Credit A U.S. bank agrees to pay the seller if it meets agreed conditions even if the foreign bank issuing the L/C fails to pay. Cash-in-Advance Buyer remits payment before seller ships the products LO Buyer Risk HI 7 The Export Opportunity A growing customer Executives High Risk-adjusted return on equity No cap on fees or interest Credit Professionals The highest SBA guaranty available 90% EWCP is SBA s lowest default rate product 1.5% Bankers Cross-selling trade services, eg. Letter of credit, FX, etc. Decoupling and clients who beat the new normal 8 SBA Export Financing Who is eligible for these SBA loans? In business for at least one year Buyer is not an affiliated business or subsidiary Products leave the U.S. Indirect exporters - with verification Personal or corporate guaranty s from all >20 percent owners Small 9 3

4 Small Business Who are you calling small? Defined at 13 C.F.R. 121 (Explained at SBA.gov) Industry Code (NAICS) Size Standards (examples) Retail or Services <$7m in Annual Receipts Manufacturing <500 Employees Wholesale <100 Employees Alternative Size Standards The Applicant s Maximum Tangible Net Worth is Not More Than $15m AND Average Net Income after Federal Income Taxes is Not More Than $5m Affiliation Issues 10 SBA Export Financing I have many and various but small financing needs. SBA Export Express Loans Features and Terms Faster processing when SBA allows lenders to use their own forms and credit scoring alone Loan amounts up to $500,000 Maturity Revolving lines of credit - 7 years Machinery and equipment - 10 years Real estate 25 years Use of Proceeds At least 70 percent export-related 30 percent domestic Eligibility - Borrowers must document how the loan proceeds will enable the borrower to - enter a new export market OR expand an existing export market 11 SBA Export Financing I need to retool or expand for my export sales. SBA International Trade Loans Features and Terms Fixed-asset financing for terms up to 25 years A portion of the loan may be used for working capital up to 10 years Refinancing existing loans is also an eligible use of proceeds Eligibility Collateral must reside in the U.S. Borrowers must document how the loan proceeds will enable the borrower to: Initiate or expand export activity OR Respond to import competition CANNOT be used for business purchase 12 4

5 SBA Export Financing I need to finance my export orders and inventory. SBA Export Working Capital Loans Features and Terms Financing costs associated with export orders is the ONLY eligible use of proceeds One-year term =.25 percent guaranty fee Balances applied to new one-year loan Eligibility Collateral may consist of: Assignment of proceeds from First lien on financed inventory letters of credit, documentary Owner(s) personal guarantees collections and foreign receivables 13 Export Working Capital Loan Transaction-based structure Disburse funds with a purchase order Can be used for single transactions or on a revolving basis Secure payment method required Credit insurance L/C possibly confirmed Finance up to 100 percent of the order production costs up to 90 percent of the P.O. Invoice Payment Pay Down EWCP Finished Goods Export Order EWCP Advance Inventory 14 Export Working Capital Loan Asset-based structure Maximizing the Borrowing Base Amount % Advance Collateral % Advance Collateral Exportable Inventory Without USG Guaranty With USG Guaranty Raw Materials $200, $80, $150,000 Work-In-Progress 200, ,000 Finished Goods 600, , ,000 Subtotal $1,000,000 $380,000 $750,000 Foreign Accounts R cvable Open Account $400,000 0 $0 90 $360,000 L/C Backed A/R 600, , ,000 Subtotal $1,000,000 $420,000 $900,000 Total Borrowing Base $2,000,000 $800,000 $1,650,000 Line Increases from $800,000 to $1,650,000 (+106%) 15 5

6 Export Working Capital How does this work in the real world? Japan Sales (70% of total sales): Animal supplements $1.5 million/year one distributor Transaction: Ongoing sales Contract manufacturer 30 days terms Buyer 60-day terms Eximbank: Single Buyer Credit Insurance Policy Working Capital Needed: $360k revolving, asset-based line to support inventory & insured A/R 90% advance rate 16 Export Working Capital How does this work in the real world? Order $660,000 for 9 modular pumping units in Chile Transaction: 50% Advance Payment ($330,000) 20% Final Shipment 20% Delivery to Mine Site 10% Withheld for 12-month warranty period Working Capital Need: $330,000 to support Standby Letter of Credit for advance payment Three months 17 Export-Import Bank What can Export-Import Bank do? Export Credit Insurance Single buyer Small business multi-buyer Foreign Buyer Financing Working Capital Guaranty Program (WCGP) 18 6

7 Export-Import Bank How does SBA s EWCP compare to the ExIm WCGP? Type U.S. Content Criteria SBA Export Working Capital Program Single order or revolving line advances on P.O. s allowed No requirements Ex-Im Working Capital Guaranty Program Single order or revolving line Minimum 50 percent U.S. content Military/Defense/Nuclear Eligible Ineligible Loan Amount Up to $5 million No limit Field Examinations Fees Not required.25% Guaranty Fee.473% Ongoing Semi-annual at Borrower s expense % 19 SBA Loan Process Will this be painful? Export Express Lender processing in house International Trade Loans Submit via Etran processing center Export Working Capital Program Submit via Etran underwritten by USEAC Authorized through processing center 20 U.S. Government Export Resources What else can help my customers grow? Export business plans US Commercial Service Business USA STEP Grants through WEDC WMEP and UW-Stout ExporTech 21 7

8 SBA International Trade Contacts Let s talk! Dennis Foldenauer Regional Manager Illinois and Wisconsin U.S. Small Business Administration Office of International Trade 200 W Adams St, Suite 2450 Chicago, IL dennis.foldenauer@sba.gov Thank You! Carlos Sosa Regional Manager Minnesota and Iowa U.S. Small Business Administration Office of International Trade 100 N Sixth St, Ste 210-C Butler Square Minneapolis, MN carlos.sosa@sba.gov John O Gara Regional Manager Michigan and Indiana U.S. Small Business Administration Office of International Trade 440 Burroughs St, Ste 315 Detroit, MI john.ogara@sba.gov 22 8