New Export Financing Option Available

There is good news for small U.S. exporters whose customers need loans to buy their products. An attractive new federally-guaranteed financing option is available. A select group of commercial banks now will be able to offer terms of 180 days to five years on federally-guaranteed loans to the foreign buyers of U.S. exports without having to obtain prior federal approval. The change means that buyers of U.S. manufactured goods and other high-value exports can obtain their financing in weeks or even days, a vast improvement over the many months that federal approval had previously required.

For years, exporters complained that long waits for approvals on federally-guaranteed loans were giving other countries that have faster loan processing a competitive advantage over the U.S.

Because of the foreign risks involved in export lending, most commercial banks throughout the world do not make these loans without government guarantees. In the U.S., the guarantees are provided by the Export-Import Bank of the United States (Ex-Im Bank), a federal agency.

Ex-Im Bank has long allowed commercial banks to pre-approve federally-guaranteed export loans of short duration – less than 180 days. And major export projects with long payback periods – from five to fifteen years – typically receive rapid approval.

The problem has been deals with repayment periods “in the middle” – from 180 days to five years – typical of machinery and goods with high unit costs. Some of these transactions were taking up to a year to obtain federal approval because there were so many of them and not enough Ex-Im Bank underwriters. U.S. exporters were losing customers as a result.

In 2004, the Small Business Exporters Association (SBEA) began asking Congress and Ex-Im Bank to delegate the authority for these “medium term” transactions to commercial banks. Congress passed the enabling legislation in 2006. A group of banks were selected and trained, and the financing window was opened late last year. Recently, the first “medium term delegated authority” transaction cleared Ex-Im Bank.

Fittingly, the first loan allowed a small business, F.L. Smithe Machine Company, Inc., of Duncansville, Pennsylvania to sell printing machinery to Mexico. The loan was handled by Northstar Trade Finance of Houston, Texas, the pioneer firm in the “medium term delegated authority” field. Northstar was recently awarded SBEA’s Robert Duncan Award for its dedication to this important initiative in small-business export lending.

Other banks currently certified to provide these loans include UPS Capital, (a subsidiary of the package delivery company), and Citibank. All three companies operate throughout the United States. Northstar and UPS Capital are targeting small businesses, while Citibank focuses on larger ones. About four other banks are awaiting approval to enter the “medium term delegated authority” program.

For more information on this program and the participating banks, please visit the following websites:

Export-Import Bank of the United States

Northstar Trade Finance

UPS Capital