Export Transaction Financing
In Alabama, SBA’s Export Working Capital Program (EWCP) loans are targeted for businesses that are able to generate export sales and need additional working capital to support these sales. SBA’s aim for the EWCP program is to ensure that qualified small business exporters do not lose viable export sales due to a lack of working capital. SBA provides incentives to banks so that they will make export loans to companies who would otherwise lack the funds. EWCP loans are used for transaction financing. For example, EWCP loans will support 100% of supplier costs for an export transaction. The EWCP loans can also be used to even out cash flow when exporters have negotiated longer sales terms and cannot carry the resulting receivables with their own working capital. The EWCP loan can be a short-term loan for a single contract or in the form of a line of credit that supports ongoing export sales for a period of 12 months.
SBA’s Role in Export Financing
Most banks in the U.S. do not lend against export orders, export receivables or letters of credit. Because of that, some small businesses that export may lack necessary export working capital to support their export sales. That is where an SBA program can make the difference. SBA provides lenders with up to a 90% guaranty on export loans as a credit enhancement, so that participating banks will make export loans that make the necessary export financing available.
The SBA delivers its export loan program through a network of SBA Senior International Credit Officers throughout the country. These specialists understand trade finance and are available to explain SBA’s export lending programs, the application process and forms and to guide exporters in selecting appropriate payment methods. They can also link companies to specialists for increasing export sales and managing foreign payment risk. The officer that services Alabama is Mr. David Leonard, located in Atlanta. The Alabama International Trade Center works in conjunction with Mr. Leonard in facilitating the EWC Program.
Exporters can apply for EWCP loans in advance of finalizing an export sale or contract. With an approved EWCP loan in place, exporters have greater flexibility in negotiating export payment terms – secure in the assurance that adequate financing will be in place when the export order is won.
- Financing for suppliers, inventory or production of export goods
- Export working capital during long payment cycles
- Financing for stand-by letters of credit used as bid or performance bonds or down payment guarantees
- Reserves domestic working capital for the company’s sales within the US
- Permits increased global competitiveness through allowing more liberal sales terms
- Increases sales prospects in under-developed markets which have high capital costs for importers
- Contributes to the growth of export sales
- Low fees and quick processing times
How to Apply
Application is made directly to lenders. Interested businesses in Alabama are encouraged to contact AITC to discuss whether they are eligible for the EWCP program and whether it is the appropriate tool to meet their export financing needs. The participating lenders review / approve the applications and submit the request to the SBA regional office in Atlanta.
Financing is available for manufacturers, wholesalers, export trading companies and service exporters. EWCP loan borrowers must meet SBA eligibility and size standards (less than 500 employees for manufacturers; less than 100 employees for wholesalers) and have been in business for at least one year. The SBA can waive the one-year in business requirement if the applicant can demonstrate sufficient export expertise and business experience.
Eligible Export Transactions
The exports being financed must be shipped and titled from the United States; there is no U.S. content requirement for the product being exported. The exports must comply with all U.S. Export Administration Regulations and cannot be shipped to a country where the United States has imposed trade embargos or sanctions. “Indirect” exports to domestic buyers who subsequently export, also qualify for EWCP financing.
The maximum EWCP line of credit/loan amount is $2 million. Participating banks receive a 90% SBA guaranty provided that the total SBA guaranteed portion to the borrower does not exceed $1.5 million. In those instances where the SBA guaranteed portion reaches the $1.5 million cap, banks can still get a 90% guaranty thanks to a co-guaranty program between SBA and the Export-Import Bank of the United States (EXIM). Under this program, the bank still submits only one loan application to the SBA and receives a 90% U.S. government guaranty that is backed by both agencies. For the EXIM Bank guaranteed portion, a higher fee may apply.
The SBA does not establish or subsidize interest rates on loans. The interest rate can be fixed or variable and is negotiated between the borrower and the participant lender.
The export-related inventory and the receivable generated by the export sales financed with EWCP funds will be considered adequate collateral. The SBA also requires the personal guarantee of owners [20 percent or more ownership.
Loan Maturity and SBA Fee
EWCP loans are typically issued for one year. The SBA fee for an EWCP loan with a 12-month maturity or less is ¼% (0.25%) assessed on the guaranteed portion of the loan. For example, for a one-year $1 million line of credit with a 90% guaranty [$900,000 guaranteed portion] the guaranty fee is $2,250 [$900,000 x .25%]. The SBA can reissue EWCP loans on an annual basis and the guaranty fee remains ¼%.
Open Account Terms and Managing Payment Risk
With increasing regularity, foreign buyers are asking for open account terms from their U.S. suppliers. In that situation, small and medium-sized exporters are faced with the prospect of either losing sales to their foreign competitors (who offer terms) or finding a way to balance the increased cash flow strain and the risk of non-payment by the foreign buyer that comes with providing terms. While the SBA EWCP loan can provide cash flow support, it is credit insurance that minimizes the risk of non-payment. Credit insurance is a special insurance product designed to protect a company’s trade credit exposure from bad debt loss caused by insolvency, default or political risk. EXIM Bank as well as private sector providers provide credit insurance. The SBA and EXIM Bank have teamed up to provide small businesses that have an EWCP loan with a 25% premium discount on an EXIM Bank Small Business Export Credit insurance policy.
Lender Training is available
The SBA Senior International Credit Officers will routinely provide interested lenders with the necessary training to become proficient on the EWCP program. They will work individually with bank staff on questions during the application process. Contact your local USEAC to arrange for in-house training for your bank on SBA export loan products.
AITC staff can help in weighing financing options and risk mitigation, plus advise on SBA loan products and application procedures. Contact AITC to learn more about the benefits of the Export Working Capital Program (EWCP) and whether your business might qualify for EWCP financing.