From the August 2006 issue of Entrepreneur

After a successful stint in the pharmaceutical industry, Shawn Kinney launched Hyaluron Inc.in 1999 as a manufacturer of hyaluronic acid, a product that can be extracted from rooster combs and used in orthopedics and eye surgery. Because hyaluronic acid is viscous, or resistant to flow, the company developed a process for putting the product into a syringe. Though born out of necessity, Hyaluron's syringe-filling expertise soon evolved into a bona fide commercial niche. Today, the $10 million company--which provides formulation and sterile manufacturing services to the pharmaceutical and biotech industries--has a growing international client roster.

Hyaluron recently had the opportunity to expand manufacturing capabilities at its Burlington, Massachusetts, facility by adding equipment to freeze-dry its clients' products, prolonging their shelf life. "To do that, we also needed to upgrade and enhance our clean-room capabilities," recalls Kinney, 48, Hyaluron's president and CEO. His longtime bank encouraged him to seek funds from Massachusetts' economic development agency, MassDevelopment, which offers foreign-trade financing to support economic growth and job creation in the state.

With an international track record in Australia and Europe and plans to do business with Asian firms, Hyaluron was an ideal financing candidate for MassDevelopment, which ultimately came through with a $1 million low-interest loan from its Emerging Technology Fund. The loan is backed by an export loan guarantee, letting MassDevelopment give Hyaluron a larger loan than is typically available through the Emerging Technology Fund.

"When we learned of an opportunity to purchase this equipment at a great price, we knew we had to move fast," Kinney says. "MassDevelopment processed our application expeditiously, so we were able to close on our new equipment and take advantage of low-interest financing to support our growth into foreign markets."

States Step Up
Exporting can mean big profits for growing businesses, but many face difficulty obtaining financing to support their foreign sales activity. Indeed, of all the obstacles facing small companies selling goods and services overseas, access to export financing is still one of their biggest hurdles.

Very often, small banks have little experience in exporting and are thus reluctant to take the international plunge, while many large lenders are not interested in financing small trade transactions. "Because of all the good export promotion work the states are doing, we've raised the level of awareness on the part of small businesses, but many [businesses] are not well-prepared to apply for export financing assistance through a bank," says Miles Friedman, president and CEO of the National Association of State Development Agenciesin Manassas, Virginia. "Many small community banks are not prepared to do international financing, and the bigger banks say it costs the same to do a small loan as it does to do a big loan, [but] the profit margin is infinitesimal for the smaller ones."

In response to this shortage of inter-national trade capital for small exporters, a number of states are stepping up efforts to close the funding gap. "Export financing began to gain some interest from states in the mid-'80s because as they got into the export promotion business, they began to [ask], 'Well, since we're helping businesses, what are their needs? What kinds of things can we do not only to encourage exporting, but to [also] facilitate it?'" Friedman says.

Some states, like Massachusetts, are taking the lead by providing direct loans and offering guarantees to stimulate private lending. Massachusetts' MassDevelopment has arranged financing for more than 40 export projects totaling more than $12.5 million in the past 10 years through its export financing program. The statewide program--which has traditionally provided exporters loan guarantees on working capital lines of credit and helped them obtain Ex-Im Bank credit insurance--began offering 100 percent financing for new equipment, working capital and leasehold improvements as part of an expanded exporter funding initiative launched in summer 2005.

Getting Businesses Moving
With its low rates and flexible terms, the Massachusetts program can help businesses that are otherwise stalled by a lack of traditional funding options make the leap into global markets. "Some of these businesses would have difficulty obtaining financing from their bank, in part due to the perceived risk of international trade and the fact [that] some of their cash flow would be coming from overseas," explains Eric Hunter, vice president and credit officer in lending for MassDevelopment. "We're able to step in and take some of that risk."

Robert Culver, MassDevelopment's president and CEO, adds, "Many of the exporters are sort of 'teenage' companies that can use a little boost at a critical time [so they can] continue to develop their export business."

Companies in Pennsylvania were facing the same sorts of funding challenges when state officials entered the export lending business about six years ago. "We were getting anecdotal reports that Pennsylvania companies were having a hard time finding export financing, particularly where companies didn't have access to an international bank," says Mary McGlinchey, international business development strategist for the Pennsylvania Department of Community and Economic Developmentin Harrisburg.

Since its inception, Pennsylvania's export loan program, which gives eli-gible businesses low-interest revolving lines of credit up to $350,000, has assisted in financing many types of companies, including a snack-food exporter, several chemical and heavy equipment manufacturers, and a firm that makes corneal implants. "All these companies were either very new to what they were doing or the transactions were very small when they started, and banks were not interested in providing financing," McGlinchey notes. "In a couple of cases, for whatever reason, they didn't meet Export-Import Bank or SBA standards, and we were able to come through."

On to Mainstream Financing
While these state-funded programs are often lenders of last resort, their goal is to help businesses establish enough of a global foothold to eventually qualify for private loans. "The intention is to have them graduate to conventional financing," McGlinchey stresses. "There are a number of companies that have found the amount that we're giving them too low and have gone to banks to get the additional funds they need."

It's important to bear in mind, experts say, that even states wary of direct involvement in export financing usually have an international trade division that can offer valuable assistance to small exporters. This might include counseling to assess the soundness of a foreign customer and help applying for loans through federally funded ex-port financing programs, like Ex-Im Bank. "Every state has an international trade program, and [business owners] should at least contact their international trade office, which can steer them to help and give them some technical assistance," Friedman advises. "They shouldn't give up."

Crystal Detamore-Rodman is a Charlottesville, Virginia, writer who covers the small-business finance market.