Small and medium-sized enterprises (SMEs), which are broadly defined as companies with fewer than 500 employees in the United States, are the backbone of the American economy, creating two-thirds of all new jobs in recent decades. A U.S. Chamber of Commerce Technology Engagement Center study revealed that SME exporters account for 98 percent of all identified U.S. exporters and play a vital role in the American economy by generating $541 billion in output in 2017 and supporting more than 6 million jobs.
In addition, according to studies by the U.S. International Trade Commission, SMEs that export tend to grow even faster, add jobs faster, and pay higher wages than SMEs that do not. However, despite these impressive data and promising benefits, many SMEs face financing challenges in going global or expanding export sales because most commercial lenders in the U.S. do not provide SMEs with working capital advances on export orders, export receivables or letters of credit due to the repayment risk associated with international sales. One viable solution to such challenges is the export finance programs offered by the U.S. Small Business Administration (SBA).
As a federal agency created to help foster the growth of U.S. SMEs and American entrepreneurs, SBA helps U.S. SMEs start exporting and/or expand export sales through the three main programs:
1. Export Working Capital Program,
2. Export Express Loan Program, and
3. International Trade Loan.
In addition, SBA administers the State Trade Expansion Program (STEP), which provides financial awards to state and territory governments to assist SMEs with export development. With SBA’s export finance and STEP grant programs, U.S. SME exporters can more easily enter, grow, and succeed in global markets.
Characteristics of SBA Export Finance Programs
Applicability: Suitable for SME exporters in need of working capital to enter, grow and succeed in global markets.
Risk: SBA assumes the repayment risk of export working capital loans extended by participating commercial lenders to SMEs.
Pros: Obtaining otherwise unavailable working capital financing to start exporting and/or expanding export sales. Helping to offer competitive open account terms to foreign buyers
Cons: Maximum loan amount is limited to $5 million. Not all commercial lenders offer SBA guaranteed export working capital loans.
Key Points
• SBA offers three export finance programs to help eligible SMEs start exporting and/or expanding export sales by guaranteeing the repayment of working capital loans extended to them by participating commercial lenders.
• SBA export finance loans are available for manufacturers with less than 500 employees as well as wholesalers, export trading companies and service exporters with less than 100 employees.
• To qualify for SBA export finance loans, SMEs must be in business for at least one year; however, early-stage SMEs may qualify with strong export expertise and business experience.
• SBA financed transactions must be shipped and titled from the United States; however, they are not subject to the same U.S. content requirement or military sales restrictions imposed on those transactions financed by the Export-Import Bank of the United States.
• SBA’s STEP grant program provides eligible SMEs with grants to help fund their export business development activities.
SBA’s Export Working Capital Program
SBA’s Export Working Capital Program (EWCP) provides participating commercial lenders with up to a 90 percent guarantee on export loans up to $5 million as a credit enhancement to make the necessary export working capital available to eligible SMEs.
To start the application process, SMEs should contact their local lenders to see if they are approved to underwrite EWCP loans or contact SBA for a referral to a participating lender. SMEs can apply for EWCP loans in advance of finalizing an export sale or contract.
With an approved EWCP loan in place, SME 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.
SBA’s Export Express Loan Program
SBA’s Export Express Loan Program (Export Express) offers a streamlined loan product for eligible SMEs with financing needs up to $500,000. Export Express can take the form of a term loan or a revolving line of credit.
As an example, proceeds can be used to fund participation in a foreign trade show, finance standby letters of credit, translate product literature for use in foreign markets, finance specific export orders, as well as to finance expansions, equipment purchases, and inventory or real estate acquisitions, etc.
SBA’s International Trade Loan Program
SBA’s International Trade Loan Program (ITL) provides participating commercial lenders with up to a 90 percent guarantee on term loans up to $5 million to eligible SMEs that plan to start or continue exporting or that have been adversely affected by competition from imports.
ITL loans must specifically be used to acquire, construct, renovate, modernize, improve or expand facilities and equipment to be used in the United States to produce goods or services involved in international trade. Other eligible uses involve bringing back production facilities to the United States, working capital financing, and refinancing any eligible business debt that is currently offered to the borrower on unreasonable terms.
SBA’s State Trade Expansion Program
Through awards to U.S. state and territory governments, SBA’s State Trade Expansion Program (STEP) helps SMEs overcome obstacles to exporting by providing grants to cover costs associated with entering and expanding into international markets. Eligible SMEs can apply for STEP grants from states participating in the program based on the rules and guidelines of each STEP grant awardee.
Under the STEP grant program, eligible SMEs can be reimbursed for expenses associated with participation in virtual and in-person trade shows, trade missions, and export training workshops, as well as other eligible expenses including shipping sample products, compliance testing, fee-based services offered by the U.S. Commercial Service, internationally-focused website development and design of marketing media, and other activities and expenses as determined by SBA.
For more information about SBA’s Export Finance and STEP Programs, visit the SBA website at: https://www.sba.gov/business-guide/grow-your-business/export-products/trade-tools-international-sales
These links updated: 4/23/18. This website has been funded in part by the U.S. Commercial Service. Copyright (c) All Rights Reserved by the District Export Council of Georgia. Image:: Fotolia_47136361_Subscription_XL .