Compete More Effectively In the International Marketplace

by Kevin Hull

global-International_MarketplaceU.S. companies continue to increase their foreign export sales, and the opportunities are plentiful for future expansion into foreign markets. Arizona companies are increasing, too, but at a lower rate than average, from a lower base than average.

The recent U.S. Census Bureau data indicated Arizona exports have grown 44 percent during past 10 years. However, the U.S. as a whole increased exports by 100 percent and neighboring Utah increased exports by more than 200 percent during that same 10-year period. In recent media appearances, Governor-Elect Doug Ducey stated economic growth through export-oriented industries is a key component for adding jobs to Arizona.

For growing companies, finding capital to support the costs associated with increasing revenue (inventory purchases, production labor, etc.) can be a challenge. When exporting to entities based outside the U.S., capital sources can be few and far between. Compounding this problem is the fact that many lenders refuse to include foreign accounts receivable as collateral.

Fortunately, there are programs available from entities such as the EX-IM Bank and the U.S. Small Business Association that can help U.S.-based exporters. The SBA’s Export Working Capital Program (EWCP) has been designed to assist small and medium-sized businesses who are exporting product but are unable to secure the necessary working capital financing to support the foreign sales. The SBA has established Export Assistance Centers throughout the U.S. that work closely with lenders and eligible businesses.

The EWCP currently offers three types of working capital financing programs:

A “single” transaction, non-revolving line of credit that finances working capital requirements for one single transaction.

A “transaction-based” revolving credit facility that can be used to support multiple transactions or a single approved transaction on a continuous basis

The “asset-based” revolving line of credit, which is supported by a borrowing base agreement.  With the “asset-based” facility, eligible accounts receivable and inventory used for the foreign sales are allowed as collateral for the revolving facility. The borrower submits a monthly borrowing base certificate to the lender.

There are several requirements for the accounts receivable and inventory to be considered as “eligible” collateral. Therefore, the company, lender and SBA EWCP representative will work closely together to determine the eligibility. Unlike the EX-IM Bank programs, the EWCP is not credit insurance; therefore, underwriting does include an analysis on the account debtor. In some but not all cases, account receivable insurance may be required in order to deem the receivable as eligible collateral. The maximum loan amount available under the EWCP program, in aggregate, is $5,000,000 and the maximum SBA guarantee for the lender is 90 percent.

The following is an actual scenario in which a West Valley manufacturing company benefitted from the EWCP program:

The growing company had several foreign-based customers in Europe and Asia, and historically self-financed the working capital requirements associated with the foreign-based accounts. Last year, the company experienced a surge in new product orders and could no longer self-finance these orders. This presented an opportunity for the EWCP “asset-based” program. Our bank worked with the company and the SBA EWCP office, identified the eligible accounts and inventory, and provided an asset-based working capital revolving credit that helped the company secure and fund the new orders. By being able to fund these new orders, the company experienced a greater than 50 percent increase in annual revenue and hired 35 new employees for its West Valley manufacturing facility.

For companies considering diversifying their revenue sources by expanding their foreign sales, a review of the EWCP programs is a necessity.

Kevin Hull is senior relationship manager with BMO Harris Bank.

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