Opportunities for Community Banks: Community Affairs Webinar Series Federal Guarantee Programsthat Support Export Lending to Small Business
Dennis R. Chrisbaum Director, International Trade Finance, SBA Michael Jackson Director, City/State Partners, Ex-ImBank Teri Ryan Branch Chief, Risk and Asset Management, USDA Foreign Agricultural Service Stephen Fancher President and CEO, Florida Export Finance Corporation James Moschella Examination Specialist, FDIC Your presenters:
National Export Initiative “Because the more products we make and sell to other countries, the more jobs we support right here in America… Tonight we set a new goal: We will double our exports over the next five years, an increase that will support two million jobs in America. To help meet this goal, we're launching a National Export Initiative that will help farmers and small businesses increase their exports…” President Barack Obama State of the Union Address January 27, 2010
National Export Initiative Announced March 11, 2010 by President Goal 1. Double exports in five years 2. Create two million new jobs Actions • Create Export Promotion Cabinet • Increase technical assistance • Increase export financing • Increase business advocacy • Strengthen trade agreements
The Export Promotion Cabinet, July 2012 To Maximize the Effectiveness of Federal Programs, the Federal Government will: • increase the national base of small- and medium- sized enterprise exporters by 50,000 by 2017, (2) expand the reach of federal export assistance—including trade financing--and counseling to small businesses, and (3) ensure better delivery of export promotion services domestically and overseas.
U.S. Global Business Solutions Export Promotion Cabinet, Objective #2: Expand Access to Small Business Trade Financing 1) trade financing perceived as too complex by many lenders 2) not high volume nor profitable for lenders 1) reduce the complexity and present a streamlined package of financing options, 2) focus only on mainstream products with greater volume potential Problem Solution
Separating Facts from Myths Myth “Small businesses don’t export.” Fact • 296,000 SMEs (98% of all exporters) exported more than $700 billion in 2011, representing 33.3% of all known U.S. exports. • Very small companies (fewer than 20 employees) account for 70 percent of all exporting firms. • Find out how important exporting is to your state: http://www.trade.gov/mas/ian/statereports/.
Perception vs. Reality Lender Perception “Lending to exporters is too risky” Reality Out of all of the SBA Sub-program codes, the Export Working Capital program has the lowest loss rate and the lowest default rate.
Perception vs. Reality Lender Perception “We can’t use SBA export loan programs, since our bank doesn’t have an international department.” Reality • An international department isn’t necessary. • The SBA/Ex-Im Bank USEAC Regional Managers will work with any bank to walk them through the process. • SBA loans are made to your customer down the street, not to a foreign entity in Mexico, China, or elsewhere.
One-Stop Shop for Export Business Needs Goals of Export Promotion Cabinet • Grow revenues and jobs through exports and the number of SB exporters—add 50,000 by Dec. 2017 • Expand the base of financial institutions and service providers who facilitate exports—add 250 trade financing originators by Dec. 2015 Solution to Increase Access to Trade Finance • Reduce complexity by packaging trade financing and marketing options that seamlessly meet exporter needs • Simplify marketing materials and increase outreach and training to meet the needs of their financial institutions • Streamline access to international experts, credit products, and business services for exporters and lenders—build volume
One-Stop Shop for Export Business Needs Strategy • Tailor the options to the stage of exporter development and capacity of the financial institution • Combine key trade and commercial finance products and services in a single menu of options made for mainstream use: U.S. Global Business Solutions • Offer a seamless, low-cost transition among options • Provide a menu of customized financing solutions for more advanced exporter needs: The Specialized Global Solutions (SGS) program
What Might a SME Need? • Working Capital for Export Development: • Attend trade shows • Secure CE mark, international patent or trademark • Meet potential business partners • Vet potential buyers, agents or distributors and purchase foreign credit reports • In-country promotions • Translation of website/product literature and other marketing costs
Solution: SBA Export Express Profile: • to $350,000 with 90% guaranty • $500,000 with 75% guaranty • Processed by SBA-approved ExportExpress lenders • Working capital: 7 years; Fix assets: up to 25 years Required: • Entering or expanding in foreign market • In business for at least 12 months (can be waived by lender if the applicant’s key personnel have export expertise and successful business experience and lender does conventional underwriting, not relying on credit scoring)
Solution: SBA Export Express Proceeds may be used for any “export development activity,” such as: • Translation of product literature or website • Participation in a trade show or on a trade mission • transaction-specific financing of export deals, including standby letters of credit • general lines of credit for export purposes • term loans for permanent working capital, machinery, equipment, or real estate used in the production of goods or services for export
What Might a SME Exporter Need? Working Capital and Credit Insurance for Export Orders: • Inventory, materials, labor, other production costs • Foreign accounts receivable insurance • Insurance and freight costs • Bank fees related to the transactions • Standby-letters of credit to guarantee bid, performance, or advance payments
Working Capital for Export Transactions • SBA Export Express—to $500,000 • Guaranteed loan; 7 years maximum working capital 2. Ex-Im Bank’s Global Credit Express—to $500.000 • Direct loan, if credit is not elsewhere available • Provides businesses with export history or orders with short-term, working capital • Terms: either 6 or 12-month revolving line of credit • Line can support general expenses of exporting, including export development and transactional costs. • Credit scored
Working Capital for Export Transactions 3. SBA Export Working Capital—to $5 million • 90% guaranty; $4.5 million guaranty • Maximum term, 3 years; typically, 1 year • Guaranty fee if 12 months or less: .25% (1/4 of 1%) Transaction-Based Financing (Purchase order financing) • Single Order or Revolving Line • Most supplier and production costs through collections Or, Asset-Based Line-of-Credit • W/C for pre-shipment, post-shipment or both • Borrowing Base: inventory, WIP, (insured) A/R Advance rates: • up to 75% against inventory and WIP • up to 90% against foreign accounts receivable
Working Capital for Export Transactions 4. SBA Working Capital CapLine • Up to $5 million loans with 75% guaranty • Maximum term: 10 years • Benefit: One line to support both domestic and international sales • Required: credit insurance on foreign A/R • One-to-one collateral ratio: • Advance rates up to 50% against inventory and equipment; • 80% against A/R and real estate
Mitigate Transactional, Non-Payment Risk Solution: Ex-Im Bank’s Trade Credit Insurance • Up to 95% coverage against non-payment due to commercial and political risk • Express Insurance: 5 day turn-around, up to 20 buyers • Insure world-wide buyers or single buyer—policy options Benefits: • Marketing—bigger orders • Financing—can add to borrowing base • Reduced complexity—no need for letters of credit • Health—sleep at night Cost: • ~65 cents per $100 invoiced amount • 25% discount paired with any SBA or Ex-Im Bank loan
What Might an Experienced SME Exporter Need? Term Loan for fixed assets: • Machinery or equipment to expand production in order to meet foreign demand • Retooling expenses necessary for metric production or to meet other standards • Permanent working capital • Real estate needed as a result of expanding export sales
Solution: SBA International Trade Loan Summary: • A 7(a) loan up to $5,000,000 for plant and equipment • maximum guaranty: 90% up to $4.5 million • either: a) expanding because of exports, or b) adversely impacted by imports and c) will improve company’s competitive position • a combination of fixed assets or term loan with W/C -- maximum Working Capital guaranty: $4,000,000 • maximum term: 25 years; 10 years for working capital • refinancing is allowed • can be process by PLP lenders • can be used for “on-shoring” if conditions above met • business plan required--application must document eligibility requirements (i.e. export projections or evidence of adverse impact by imports)
All Four SBA Loans Can Be Used to Support Indirect Exports • Applicants who produce products or services that enter into the export channel, but do not directly export their products • Manufacturers using an Export Trading Company • Suppliers to other domestic manufacturers that export directly • Requires certification from domestic customer that goods are, in fact, being exported.
What Else Might an Experienced SME Exporter Need? Term Loanfor the Foreign Buyer: • Ex-Im Bank’s Medium Term loan guarantee to a lender that finances a foreign buyer’s purchases of U.S – made capital equipment and any related services. • BENEFITS: Enables an exporter to sell large ticket capital equipment to a foreign buyer on favorable credit terms generally between 1 and 5 years and be cashed-out up front by a lender • ELIGIBILITY: Products must be of U.S. origin. Buyer must make a minimum 15% cash down-payment. • COST/FEES/TERMS: A variable exposure fee is based on the risk of the transaction and a commitment fee of 0.125%. The interest rate is negotiated between the lender and the foreign borrower. • RESTRICTIONS: Lenders must have a Master Guarantee Agreement in place to participate.
What Else Might an Experienced SME Exporter Need? Working Capital Over $5 million: • DESCRIPTION: To purchase finished goods, raw materials, labor and fund overhead costs to fulfill export sales orders or to post a bid or performance bond. Guarantee 90% of the loan amount. • BENEFITS: Offers generous advance rates (up to 75% on inventoryand work-in-process, and up to 90% on foreign A/R). • HOW IT WORKS:Lender either approves under their own “delegated authority” or sends to Ex-Imfor concurrence. Loans may be revolving lines of credit or transaction-specific. • ELIGIBILITY: Company must be in business for at least one year with financial statements available on its operations. Goods and /or services exported must be of U.S. origin. • COST/FEES/TERMS: $100 processing fee. 1.75% annually, 1.25% available on a case-by-case basis for lower-risk transactions. Interest rate on the loan and any other fees are set by the lender.
USG Programs for Your Export Customers • Export Development --SBA Export Express—to $500,000 B. Working Capital --SBA Export Express—to $500,000 --SBA’s Export Working Capital—to $5 million --SBA’s CapLine—to $5 million --Ex-ImBank’s Global Credit Express—to $500,000 --Ex-Im Bank’s Working Capital—over $5 million C. A/R Payment Risk Mitigation --Ex-Im Bank’s Trade Credit Insurance programs D. Foreign Buyer Financing --Ex-Im Bank’s Medium Term Loan Program Please USE Them!
Ex-Im Bank Field Offices Regional Export Finance Centers Midwest Western Chicago Regional Export Finance Center Orange County, CA Regional Export Finance Michael Howard: 312-353-8081 David Josephson: 949-660-1341 Detroit San Francisco Field OfficeJohn Toles: 313-309-4158 James Lucchesi: 415-705-2285 Minneapolis SeattleDenis Griffin: 612-348-1213 John Brislin: 206-728-2264Northeast and Mid-Atlantic New York Regional Export Finance Center Thomas Cummings: 212-809-2650Southeast Southwest Miami Regional Export Finance Center Houston Regional Export Finance CenterSharyn Koenig: 305- 526-7436 Patrick Crilley: 281- 721-0465 Atlanta North Texas Branch McKinney (Dallas), TXSusan Kintanar: 404- 897-6082 Kelly Kemp: 214-551-4959
SBA’s Network of Trade Finance Specialists at U.S. Export Assistance Centers CHARLOTTE Territory: North Carolina, South Carolina, Eastern Tennessee Dan Holt 704-333-4886 x226 CHICAGO Territory: Wisconsin, Illinois, Iowa John Nevell 312-353-8065 CLEVELAND Territory: Ohio, Western New York, Western Pennsylvania, Patrick Hayes 216-522-4731 DALLAS/FORT WORTH Territory: Texas, Oklahoma Rick Schulze 817-684-5506 DENVER Territory: Colorado, New Mexico, Utah, Wyoming Bryson Patterson 303-844-6623 ext.218 DETROIT Territory: Michigan, Indiana John O'Gara 313-872-6793 MIAMI Territory: Florida , Puerto Rico, Virgin Islands Mary Hernandez 305-526-7425 ext. 21 MINNEAPOLIS Territory: Minnesota, North Dakota, South Dakota Carlos Sosa 612-348-1642 NEW ORLEANS Territory: Louisiana, Arkansas, Mississippi Pellson Lau504-589-6730 NEW YORK CITY Territory: New York City & 5 Boroughs, Eastern Upstate New York, New Jersey Toni Corsini 212-809-2645 PHILADELPHIA Territory: Eastern Pennsylvania Robert Elsas 215-597-6110 PORTLAND Territory: Oregon, Southern Idaho, Montana Jeff Deiss 503-326-5498 SEATTLE Territory: Washington, Alaska, Northern Idaho Pru Balatero 206-553-0051 ext.228 ST. LOUIS Territory: Kansas, Missouri, Nebraska John Blum1314-260-3788 ATLANTA Territory: Georgia, Alabama, Kentucky, West/Central Tennessee Sandro Murtas 404-815-1496 ARLINGTON, VA Territory: Virginia, Maryland, District of Columbia, West Virginia, Delaware William Houck 202-557.4063 BOSTON Territory: Maine, Vermont, New Hampshire, Massachusetts, Connecticut, Rhode Island John Joyce 617-565-4305 CALIFORNIA IRVINE Territory: Southern California, Southern Nevada, Arizona Martin Selander 949.660-8935 SACRAMENTO Territory: Northern California - Fresno to the Oregon border, Northern Nevada, Hawaii, Guam Jerry R. Avila 916-735-1708
Questions Primary Contacts: Dennis R. Chrisbaum, SBA Dennis.Chrisbaum@sba.gov; 202.205.6885 Michael Jackson, Ex-Im Bank Michael.Jackson@exim.gov; 202.565.3479
EXPORT CREDITGUARANTEE PROGRAM GSM-102 Facilitating Trade finance Foreign Agricultural Service United States Department of Agriculture
GSM-102 WHAT IS GSM-102? It’s not a loan… It’s not a grant… It’s a guarantee Backed by the full faith and credit of the United States Government
PURPOSE OF THE PROGRAM GSM-102 Promotes the export of U.S. agricultural products by facilitating the financing component via a credit guarantee. USDA guarantees the letter of credit to emerging markets where sales may not occur without the financing and guarantee.
PROGRAM DESCRIPTION GSM-102
Program Participation GSM-102 • Approved Countries/Regions • Approved Foreign Banks • Qualified U.S. Exporters • Approved U.S. Banks • Importers do not need to be approved
MISCONCEPTIONS GSM-102 GSM-102 is… • Not just for bulk commodities • High-value processed products are also covered • Not just for large corporations • Approximately 47% of participants are SME’s • Not just for large dollar transactions • Transaction sizes have no minimum. Many are under $1 million USD
ELIGIBLE COMMODITES GSM-102 • 100% produced in USA • High-Value products (90% U.S. Content) Consumer-ready - Intermediate - Bulk
How MUCH IS THIS GOING TO COST? GSM-102
GSM-102 COMPARISON WITHOUT GSM-102 WITH GSM-102 Carry 100% Risk U.S. exporter more likely to ship since USDA carries 98% of the risk and payment is received upon presentation of documents Presence of loan term extended by the U.S. bank to the foreign bank may encourage extension of credit by the foreign bank to the importer Importer now in better position to negotiate favorable loan terms with GSM-approved bank in the region U.S. exporter reluctant to ship without being paid in advance Bank in region may be unwilling to provide credit to importer Any financing to importer may have very short repayment terms & higher interest rates Carry 2% Risk
Benefits to u.s. Banks GSM-102 Less risk – USDA assumes almost all risk in the event of nonpayment Ability to leverage country & foreign bank limits Reduce capital requirements due to USDA guarantee Ability to lend up to 2 years Ability to lend at reduced rates because of USDA guarantee Establish or improve correspondent banking relationships Service U.S. exporter clients & expand relationships Foreign Bank
Benefits to an exporter GSM-102 • Open new markets and expand sales where risk may be greater • Minimal cost – fees average about 1 percent • Reduce importer and foreign bank risk • Get paid quickly by assigning guarantee to U.S. bank and delivering shipping documents that conform with L/C • Ability to lower all-in-costs to the buyer
GSM-102 How to get started? U.S. Bank Provide most recent audited financial statements Documentation from federal or state agency regulator Identify shareholder ownership & management Contact information of principal and U.S. regulator
GSM-102 How to get started? Get a DUNS number Exporter Submit qualification application Negotiate sales contract with buyer Contact U.S. bank (if assigning guarantee) Submit request for guarantee/pay guarantee fee
GSM-102 markets Africa & Middle East Central Asia Russia Southeast Asia Caribbean China South America Turkey Central America Mexico South Korea Vietnam
Registrations (USD Billions) GSM-102 $5.32 billion $4.12 billion $4.13 billion $3.09 billion $3.11 billion $1.44 billion .49% .26% 5.23% 4.23%
Global UsageFY 2011 – 2012 (in USD millions) GSM-102 $ USD Millions +Eurasia Region discontinued in 2012
TOP COMMODITIESFY 2012 GSM-102
FY 2013 Programming GSM-102
ADDITIONAL INFORMATION See how your business can benefit from GSM-102 Contact Us Teri Ryan 202.720.0663 firstname.lastname@example.org www.fas.usda.gov/excredits/ecgp.asp Foreign Agricultural Service United States Department of Agriculture
Florida Export Finance Corporation FEFC A not for profit corporation created and funded by the State of Florida by the Florida Export Finance Corporation Act of 1993- FL. Statutes 288.770-288.779.