Abroad, Not Overboard
For exporter Michael Hainsworth, offering overseas buyers extended payment terms has become a competitive necessity. As a result, his family's company, Flare Industries Inc., has waited as long as a year to get paid for the equipment it manufactures for the oil and gas industries. "A lot of our clients these days are asking for very difficult payment terms--long payment cycles and very few milestone payments on large international projects," says Hainsworth, 31.
Like many growing businesses, the Austin, Texas, company started out self-funding its export orders, which took a toll on the firm's reserve of working capital. "Not only was self-funding the orders difficult, we were having trouble selling many international projects due to difficulty in financing these jobs," Hainsworth recalls. "Oftentimes, we had to increase our prices significantly to [finance] the projects, [which] would make us uncompetitive."
Hainsworth finally found some relief in 1998, when he learned of Export-Import Bank, an agency set up by the U.S. government to provide loan guarantees to help American exporters obtain working capital loans and export credit insurance to protect against nonpayment by foreign buyers. With an Ex-Im Bank-backed line of credit through its regular bank, the company has seen international sales more than triple in the past 10 years. Says Hainsworth, "Without Ex-Im, we wouldn't be able to provide the payment terms our customers are looking for."
While the Department of Commerce reports that 97 percent of American exporters are small businesses and account for nearly a third of U.S. exports, there are still many difficulties in taking a business abroad. In addition to informational and regulatory roadblocks, there's the fact that small-business trade financing isn't a priority for many banks.
Ex-Im Bank, however, is stepping in to fill that void. In response to criticism that Ex-Im was focusing too heavily on big-business deals at the expense of smaller exporters, Congress ordered it to give small businesses a bigger chunk of the credit it approves each year. The agency has also set up a small-business division to give more support to these exporters. As a result, navigating the export loan process has gotten a lot easier for entrepreneurial companies.
For businesses involved in environmental export activity, there's another reason to consider Em-Im Bank financing: In recent years, Ex-Im has extended the repayment terms for loans used to fund goods and services for renewable energy and water projects. "These companies are going global far earlier in their life cycles than other companies, and we want to be there to work with them," says Ex-Im vice president Linda Conlin.
To get needed Ex-Im backing, entrepreneurs may need to look beyond the local bank that carries their line of credit. "Maybe they're churning along and have annual revenue of $10 million. And all of a sudden they receive a contract for $5 million from a company in Saudi Arabia that needs to purchase some oil- and gas-related service equipment," explains Martha Gentry, executive director of global trade services in the Dallas office of JPMorganChase, one of Ex-Im's most active small-business lenders. "Typically they would go to their bank and ask to borrow money against the receivables, but most banks tend to shy away from that because of the high risk associated with the international assets that ultimately will be collateral."
While finding a lender that specializes in Ex-Im financing can keep an international deal alive, Hainsworth is quick to stress the importance of finding the right lender, which, in his case, is a bank that not only specializes in Ex-Im financing but is also responsive to his increasingly middle-market needs. "It's really important to get a good bank and have a good relationship with the bank," says Hainsworth, whose company reached more than $20 million in sales in 2007. "Ex-Im allows [the financing] to happen, but without the bank you wouldn't be able to move forward with the Ex-Im program."
Crystal Detamore-Rodman is a Charlottesville, Virginia, writer who covers the small-business finance market.