When Steve Lamond launched International Turbine Systems Inc. in 1992, he seemed to have all the key ingredients for a successful venture. His father, Jim, had the necessary technical expertise, as well as extensive knowledge of the northern Africa region the company would be tapping for business. The Warehouse Point, Connecticut, firm also had an interested client, a gas and oil production company that needed help overhauling and repairing equipment used in its Algerian oil fields. Business was booming after a time, but financing for Lamond's global enterprise was in scarce supply.
"The early projects were financed by a minimal cash infusion from the principals, but that only supported us for about a year and a half," Lamond, 44, recalls. "It became clear that for us to continue to develop and support the projects coming our way, we needed to do something else. I began to explore financing options. As is typically the case for small businesses, unless you've got a track record and a series of completed projects with good financial data, no bank wants to talk to you, especially if [you're] dealing internationally. We struggled for the second year trying to find someone who would work with us."
Factoring got International Turbine through the rough patch, after several banks shunned the $4 million company because it was either too small or didn't fit their profile of a viable export business. With traditional credit out of reach, Lamond found a lesser known financing source for companies doing business overseas: government-guaranteed loans. His search led to Export-Import Bank, which has a number of programs designed for small-business exporters, from insurance against default by foreign creditors to guaranteed working-capital loans.
With confirmed letters of credit from foreign buyers, International Turbine was able to borrow to develop spare parts. "Some contracts ran into the six-months to one-year delivery period," says Lamond. "The Ex-Im money was very important when I was building parts and product to ship."
Bank Culture Shock
Lamond's credit pursuit had a happier ending than many. While a global view of the economy has fueled export interest for even the smallest firms, financing small-business trade isn't a priority for many banks. Larger banks tend to specialize in bigger transactions because the fees and interest those loans generate are more significant. Small banks, meanwhile, are wary of international transactions.
"The larger financial institutions' threshold for transactions is larger than anything small businesses are looking for," says Paul Pirrotta, senior vice president of Hartford, Connecticut-based Webster Bank. "In fairness, most have a small-business unit of some kind. The question is, will services that require a little more knowledge, expertise and sophistication be available to a small business, or will a large bank see it as a money-losing proposition?"
Merging financial institutions are also to blame. "Consolidation has limited the number of banks that have the capability and commitment to provide this service," explains Pirrotta, a 30-year international banking veteran.
Even without a major commitment from the banking industry, the number of small and midsized businesses that export has grown steadily in recent years, now accounting for 97 percent of all U.S. exporting firms, according to SBA figures. Nonetheless, small companies that export generate only about 30 percent of the dollar value of the nation's export sales.
Small-business advocates believe that figure is too low. Exporting companies experience 20 percent faster employment growth, according to the SBA, and are 9 percent less likely to go out of business than nonexporting firms. But barriers to entry, including financing difficulties and the fact that many lack an international track record, prevent many smaller firms from taking the global plunge. What's more, larger businesses that export have some knowledge of international markets, how to reach them and how to manage the transactions financially. Small companies just aren't seen as savvy when it comes to international dealings.
On the Rebound
When banks are reluctant to deal in emerging markets or lend to companies lacking international resumes, government-guaranteed programs are often the lender of last resort. The SBA, for one, has a range of programs to provide short- to long-term working capital to small exporters and, like Ex-Im Bank, offers expedited loan review and approval procedures to active lenders. Despite lender incentives and outreach to financial institutions, small-business trade finance still lags behind other types of business credit. Most of the 90 banks operating in Lamond's home state, for instance, are SBA lenders, according to the SBA's Connecticut District Office. Of those, only about 30 make small-business export loans.
To boost the amount of available credit for small and midsized exporters, Ex-Im Bank has even opened its working-capital guaranteed program to asset-based lenders, such as GE Capital Corp. "Consolidation in the banking industry means there are fewer commercial banks pushing these programs, but we have seen an uptick with community banks and asset-based lenders," says William Redway, group vice president of the Small and New Business Group of Ex-Im Bank.
Adds Michael Spivey, the director of business development at Ex-Im Bank: "The biggest challenge we have in working with community banks is helping them develop the expertise to manage the products that we offer."
Export-Import Bank has 120 lenders that have delegated lending authority, which means they're able to underwrite and approve loans with only a minimum of oversight. However, only about 20 of those trade finance providers are really active. Even so, the financial community overall is far more responsive to trade financing needs than it was a decade ago, according to Spivey. "Ten, 15 years ago, banks in particular saw financing exports as something that they would do on an exceptional basis," he says. "Now, financing exports is no longer that exceptional, rare issue confronting banks of all sizes."
While Ex-Im Bank devotes significant resources to promoting the programs it offers to the financial community, it also targets business owners themselves with a great deal of marketing. Indeed, each of the approximately 250,000 exporters in the United States typically receives at least two pieces of direct mail from Ex-Im annually. Those same business owners also are likely to encounter Ex-Im representatives at trade shows or if they attend one of the roughly 60 seminars the agency hosts throughout the country in areas such as Atlanta; Lubbock, Texas; and Tulsa, Oklahoma.
A survey of Dallas firms revealed that banks' lack of familiarity with what's available in terms of guaranteed export financing programs is a major frustration for entrepreneurs, according to Robert Hudspeth, an advisor to the Greater Dallas Chamber of Commerce. "Their banks weren't interested in doing the deal," he says. "If they go to a larger upstream bank, that bank usually requires them to have an account relationship, and the small-business owner is usually reluctant to move his entire banking relationship out of the community bank so he can do just one transaction."
Often, companies wait too long before taking transactions to their bankers, Hudspeth says. "A lot of deals don't happen because it's too late. The deal has already been structured, and it's not satisfactory to the banker. The banker may be in a position to say very early on, 'We can help you, but here are our suggestions.'"
Before financing becomes an issue, however, you should evaluate whether an international deal is even doable. Hudspeth recommends visiting a Small Business Development Center, the Service Corps of Retired Executives or a U.S. Export Assistance Center to get the information you need.
Lamond concurs: "You've got to do a lot of homework in the early days," he says. "It took a lot of study to understand all the different options. You can spin your wheels and spend a lot of your time going to the wrong resources."
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Crystal Detamore-Rodman is a Charlottesville, Virginia, writer who covers the small-business finance market.