By Jeff Rauth. Email Here or 248 885-8797. SBA Loan Officer at a Bank That Lends Nationally. 15 Years Commercial Real Estate Experience. Past Commercial Mortgage Broker.
There are a lot of misconceptions as well as lack of awareness of the existence of and benefits to the SBA’s export loan programs that are available for small business owners. Borrowers should care about this as the benefits for them are numerous and considerable. For example, better interest rates, longer fixed periods, more flexible/aggressive underwriting, and higher leverage top the lists.
Being considered an exporter by the SBA is not as complicated as you may assume. Only a small percentage of your existing sales (there is no set definition at this time) need to be generated from exporting and or you have to have future plans of becoming an exporter. Also, as discussed below, under the International Trade Loan Program you can qualify as an exporter (as well as the benefits) if your business has been adversely affected by foreign importers even though you may not actually be exporting goods.
SBA Export Loan Programs
There are three general export loan programs that the SBA offers: the SBA Export Express Loan Program, Export Working Capital Program and the most popular the International Trade Loan Program. All three have different focuses as well as reliability of actually closing/funding which is discussed below.
Export Express Loan Program – This is for loans less than $500,000 that normally do not have substantial collateral such as equipment or real estate. Loans are normally in the form of a line of credit or a working capital term loan. Borrowers can use the funds to finance purchase orders, standby letters of credit, etc.
There are not many lenders that participate in this program, because: there is less collateral backing these loans; loan amounts are relatively small; the fees and servicing requirements for the funding banks are relatively high. These loans do certainly close but are not as popular as the International Trade Program. Borrowers should work with lenders that have a proven track record with this specific program and that are actively closing loans with it.
Export Working Capital Program– Loan amounts up to $5,000,000 for transactional purposes such as purchase order financing to collections. Normally used to help bridge the gap on long payment cycles. Because of the lack of fixed assets, general fluidity of the collateral (such as a purchase order/ accounts receivables) and high loan amounts, most bank shy away from this program.
International Trade Loan Program – Loans amounts up to $5,000,000 and is used to finance fixed assets such as purchase or refinance of commercial real estate, renovations, expansions, equipment as well as to finance working capital, partner buy outs, etc. This is the most popular and widely used SBA export program of the there. Financing can easily be as high as 90% (and higher) with amortization schedules to 25 years with no balloons. Other benefits include no performance based covenants, such as debt service ratio that many conventional banks require and no demand clauses.
In addition, businesses do not need to be in the exporting business to qualify if they can demonstrate that they have been adversely effected by import competition and that the loan proceeds will help them become more competitive. There are a wide range of small businesses that can accurately make this claim. For example, most manufactures have been negatively impacted by foreign importers, such as the automotive industry, furniture manufactures, textile, steel industry, etc.
It is important for potential borrowers to work with lenders that understand how to structure these loans so that you receive the most benefits possible.
Why the Benefits Exist
The government wants the US to become stronger in terms of exporting more goods throughout the world. To inspire banks to lend more to exporters to help them grow, the US/SBA offers additional incentives and guarantees to banks that actually fund the loans. These additional guarantees reduce risks for banks as they have less capital to lose if a borrower defaults.
For example, under a normal SBA 7a loan program the SBA normally guarantees 75% of the loan. With the International Trade Loan Program it goes to 90%. So simply stated, the bank has less capital to lose and less tied up on their balance sheet.