U.S. Small Business AdministrationExport Finance Programs

Global Business Club of Mid-Michigan

Global Opportunities for Michigan ManufacturersMarch 24, 2011

John O’GaraExport Solutions Group

U.S. Small Business Administration

U.S. Export Assistance Center(USEAC) “Yous-e-ack”

• Created in 1995• USEACs are located in more than 100

cities • U.S. Dept. of Commerce, SBA, Eximbank• Provide SME’s with hands-on export

marketing and trade finance support• Work closely with federal, state, local,

public, and private organizations

National Export Initiative (NEI)

• President Obama’s goal of doubling exports over five years to support 2 million jobs in America (Jan 2010)

• Three areas of focus:– Trade advocacy (educating firms about overseas,

opportunities, connecting them w/new customers, advocating for their interests)

– Improving access to credit (asks ExIm Bank to increase available financing for SMEs)

– Continue rigorous enforcement of international trade laws

Michigan Top Five Export Countries - 2010

Canada $21.7 billion

Mexico $ 7.4 billion

China $ 2.2 billion

Germany $1.5 billion

Japan $1.2 billion

2010 Michigan Exports Worldwide Total……$44.5 billion

Risks of International Trade

• Commercial • Political or Country• Transit• Currency Fluctuation• Strikes, Riot, Civil Commotion• War

5

Methods of Payment

• Cash in Advance• Letter of Credit

Irrevocable vs. RevocableSight vs. Time

• Documentary CollectionsCash Against DocumentsDocuments Against Acceptance

• Open Account

6

Export Finance Needs

• Pre-shipment financing– Pay market development costs– Post bid/performance bonds– Acquire/manufacture goods

• Post-shipment financing– Provide supplier credit ( Open account

sale)– Post warranty bonds

7

Export Working Capital Program (EWCP)

8

• “A business should not lose a viable sale due to a lack of working capital”

Export Working Capital ProgramFeatures

• Supports single transactions or multiple transactions.

• Guaranty fee ¼% of Guaranteed portion• Max. SBA Exp/Amt. = $ 4, 500,000/$5,000,000• 90 % guaranty for the lender• No minimum U.S. content requirement.• Can support sales to military buyers.• Short turnaround time < 10 days.• Supports Standby L/Cs

9

Use of Proceeds

- Standby Letters of credit for bid or performance bonds-

- Acquire/produce goods or services for export

- Accounts Receivable of such foreign sales

10

EWCP - Indirect Exports

• Applicants who produce products or services that enter into the export channel, but do not directly export their products are eligible for EWCP financing• Manufacturers using an Export Trading Company• Suppliers to other domestic manufacturers

• Requires certification from domestic customer that goods are in fact being exported.

EWCP - CollateralTransactional financing has a self-liquidating

aspect:

– First lien on all assets being financed

– Personal guarantees of all owners of 20% or more who are active in the business

– Other collateral on a case-by-case basis

EWCP Fees

• One time guaranty fee of ¼ of 1% of the guaranteed portion for loans with a maturity of 12 months or less.

• 0.55% basis point on-going fee paid by lender

• Exporter and lender negotiate Rate and fees;

What Do We Look for?

• Exporter’s ability to perform

• Purchase Order, L/C or signed contract

• Creditworthiness of foreign buyer

• Creditworthiness of exporter

• Terms of sale and method of payment

14

Logistics & Export Documentation

INCO Terms TERM

Cost of Goods atFactory

Transport to Dock

Loading Onto Vessel

Ocean or Air Freight Charges

Shipping Insurance

Unloading Charges

 

EX-WORKS (EXW)

X

  FREE ALONG SIDE (FAS)

X X

 FREE ON BOARD (FOB/FCA)

X X X

 COST + FREIGHT(CFR/CPT)

X X X X

 COST + INS+FREIGHT(CIF/CIP)

X X X X X

  EX-QUAY(DEQ)

X

X

X

X

X

X

16

EXPORT EXPRESS

• Fast turnaround• Streamlined application• Lender uses own forms• 90% guaranty up to $350,000• 75% guaranty to max of $500,000• Use of proceeds supports export activity

17

SBA Export ExpressUse of Proceeds

• Export development activities such as marketing and trade shows

• Transaction specific financing such as production cost of labor, materials and overhead

• Revolving lines of credit for export purposes

18

SBA Export ExpressUse of Proceeds

• Facilities or equipment to be used in the U.S. to produce goods or services for export

• Loan proceeds may not be used to finance overseas operations

• Lender must review Eximbank CLS to verify eligibility

19

Trade Finance Success

• Firm: Boat Lifts, Inc.• Product: Boat hoists for pleasure craft other

commercial applications• Situation: Order from Norway for $440M• Need: Pre-shipment working capital to fill a

specific purchase order, payable by ILC. • Solution: A $330M EWCP to support pre-

shipment working capital needs.

20

Trade Finance Success

• Firm: Dynamic Manufacturing• Product: Industrial wood chipping

machinery• Situation: Orders from multiple

countries• Need: Pre-shipment working capital to

fill purchase orders • Solution: A $2MM EWCP to support pre-

shipment working capital needs

21

Trade Finance Success

• Firm: Metal Plating, Inc.• Product: Anodizing and phosphating

lines• Situation: 2 Contract(s) for $3MM

with Egypt. Down payment of 30% for both ($900M) requiring Standby L/C’s.

• Solution: A $1MM EWCP to support issuance of Standby L/C’s.

Trade Finance Success

• Firm: Thumb Tool & Die• Product: Plastics processing machinery and

strand pelletizing equipment.• Situation: Order from China $3.7M. • Need: Pre-shipment working capital to support

standby L/C and manufacture of equipment.• Solution: 2 loans:

A $500K EWCP to support Standby L/C- 18 monthsA $1.5M EWCP Co-Guaranteed by Eximbank- 1 year

23

State Trade & Export Promotion(STEP) Grant

• Created by Small Business Jobs Act of 2010, Section 1207

• Three year program• Competitive grant applied for and administered by

States• Goal

– increase the number of small businesses exporting– Increase value of exports for small businesses currently

exporting

• Deadline for proposals, one from each State, April 26, 2011

• Anticipate availability Summer 2011

24

Contact Info:John R. O’GaraRegional ManagerOffice of International TradeU.S. Small Business AdministrationU.S. Export Assistance Center8109 E. Jefferson Ave., Suite 110Detroit, MI 48214John.O’Gara@trade.gov(313) 226-3670

25