Banking on Government
Political Opinions Differ, But the Ex-Im Bank Has Opened Doors and Markets for America’s Exporters
One day last June, Ray Zuckerman, chief executive of Serverlift, a Phoenix-based manufacturer of transportation systems for data center servers, received confirmation he’d obtained a $250,000 insurance policy requested from the Export-Import Bank of the United States. The terms included both a policy quotation and credit approvals for two buyers—one in Turkey, the other in Ireland. It covered up to $300,000 within five business days.
Zuckerman praised Ex-Im, as the agency is almost universally known, for making his company’s foreign receivables more appealing to bankers. “The bank’s support gives us the credibility that we need to pursue foreign buyers,” he says. “Extending credit makes us more attractive to our customers and allows us to sell to larger companies.”
The Arizona manufacturer turned out to be the thousandth new small-business user of the agency’s products, joining the ranks through a new program called Express Insurance. Being able to tout the satisfaction of a small company—Serverlift’s estimated sales were under $3 million last year—was a plus for the agency, whose reputation for servicing big corporations had become an albatross that nearly led to its demise in political infighting earlier this year.
Among exporters, Ex-Im is widely admired for providing financial services that serve to fill in the gaps between what exporters need and what private lenders and insurers, wary of foreign customers in unfamiliar countries, prefer to avoid. Ex-Im also has raised the ire of some conservative commentators and politicians for helping companies in certain foreign countries finance deals for certain American products—planes, for example, from Boeing. (Ire tends to be raised by those suggesting American taxpayers are footing the bill for these loans; Ex-Im insists they are not, that the agency pays for itself by making consistently profitable transactions.)
Last spring, as the deadline for re-chartering the bank approached, normally business-friendly conservatives focused on the bank’s deal-making—and the fact that large corporations, in particular Boeing—seemed to benefit disproportionately. As the vote to re-charter Ex-Im ticked down to the last minute, ironically it was the Democrats who mustered support to keep it going. In the 11th hour the agency was re-chartered for another two years.
Having come within a hair of obliteration, the bank’s new lease on life brought about some significant changes. Reflecting the level of support it holds in the White House, the agency survived its legislative battle not only intact but expanded; the amount of capital it was permitted to deploy was increased 40 percent. The remarkable increase in the finance cap provided the agency with another $40 billion to play with, extending its footprint to $140 billion.
Its battle for survival over—at least for the next two years—the agency returned to the daily business of encouraging companies to export and providing the services it contends fill in the crucial gap between what exporters need and what commercial lenders are willing to offer.
“America needs to export more,” Fred Hochberg, chairman of the Ex-Im bank said in May at a forum on Long Island, making his first public appearance just days after the re-chartering. His goal, he said, was to increase the ranks of small-company exporters by 5,000. “Most of the world’s consumers—95 percent of them—don’t live in the United States. Why don’t more small companies export? The main obstacle,” he continued, “is dealing with risk. And that’s where we can help.”
Ex-Im offers three basic financial products to exporters: loans to overseas buyers of U.S. goods , loan guarantees for overseas sales offered to private U.S. lenders and loan insurance offered directly to exporters.
Hochberg, who inherited the Lillian Vernon mail order company from his mother and ran it for some years before taking it public, suggests that the fear of not getting paid by overseas customers can be mitigated by instituting sound risk-management steps. He recommends new exporters start by asking their customers to fill out the agency’s standard forms, a process that helps demystify credit extension. Having this information available is simply good business, he says.
Martha Montoya, a California serial entrepreneur with no special desire to add paperwork to her life, makes an exception for Export-Import Bank forms. “We used to fill out the paperwork for banks before,” she says. “Now, we use Ex-Im forms and ask our customers to fill them out. These forms go further, get more details, like actual sales, and list references, names and contact information for their other suppliers. I tell the customer, ‘This is from Ex-Im, you have to fill them out. It’s their policy and I have to use them.’”
She laughs, “It’s a kind of shield to ask all these questions and get all this information. We’re protecting ourselves with these tools. My banker told me, ‘Wow, you really know what you’re doing.’ It takes away the pressure of wondering if you are going to be paid or not.”
Love & Quiches started in entrepreneur Susan Axelrod’s kitchen in 1973, and now manufactures packaged cakes and pies from a factory in Freeport, New York. The company sells to customers around the world, recently expanding sales in places such as Russia, Kuwait and the United Arab Emirates. “We like to sell in those parts of the world,” Ms. Axelrod says. “But it’s tough to get lines of credit and working capital.”
Ms. Axelrod applied for Ex-Im Bank’s small business export credit insurance, filled out her paperwork and got it. When she approached Wells Fargo Bank, the lender was willing to advance funds against the foreign receivables, providing a major boost to her cash flow. Now, “I borrow money based on my receivables,” she says.
Andrew Axelrod, the company’s president, adds, “My foreign sales may not be acceptable to my U.S. lenders, but because they’re insured by the Export-Import Bank, they’re treated like domestic receivables.”
Ex-Im positions itself to small businesses as the lender of last resort, an argument that rests on the assertion—made by certain economists and Beltway think tanks—that private lenders do not always judge risk effectively. This is the argument cited by the bank’s opponents who say, in effect, “If this is a good deal, why doesn’t the private sector do it and not the government?”
“There are cases where risk is judged higher by private bankers than experience shows to be the case. Private lenders frequently overrate the difficulties of financing exports,” says Gary Hufbauer, a fellow at the Peterson Institute for International Economics in Washington and a frequent backer of Ex-Im policies. “Another failure is that private banks are not enthusiastic about doing business with medium and smaller companies. It just may not be worth their while.”
Since June, Ex-Im has opened three new regional export finance centers—in Minneapolis, Atlanta and Seattle. An office in Detroit is scheduled to open this fall. Hufbauer was in Seattle just before Labor Day to preside over the new center’s grand opening, taking the opportunity to declare that Ex-Im authorizes more financing to Washington than to any other state in the nation.
What he said was correct, but what he left out was telling. The reason the Northwest state dominates the field is that the Boeing Corporation absorbs nearly all the state’s capital. Boeing, in fact, is far and away the largest recipient of Ex-Im financing in the country. Last year the aerospace giant received about 38 percent of the bank’s financial assistance, totaling $12.4 billion, including $700 million for Boeing Satellite Systems.
The second-biggest recipient was General Electric, which received $1.2 billion.
Most of this financing is in the form of direct loans or loan guarantees to overseas customers, such as Ethiopia, whose state airline took delivery of a Boeing 787 in August. Boeing received more than a third of the 115 loans and long-term guarantees the bank issued last year, according to an analysis by CNS news service. This positioning has angered a number of small-business advocates, who feel the company needs no public support to close its deals.
Steven Dreyfus, who owns a small export management company in New York City, considers himself a fan of Ex-Im, and cares little about the political storm. Last year, after 20 years, his insurance company announced a rate hike his business could not absorb. With little to lose he reached out to Ex-Im; the agency stepped in and offered rates comparable to what he had earlier been paying.
“I don’t understand why my rates were jacked up so high, because the insurer wasn’t losing money on me,” says Dreyfus. “I don’t know how you could not use Ex-Im Bank credit insurance. With Ex-Im, I know I am able to mitigate my international credit risk, both by individual customers and by country. As an entrepreneur, where I invested my own money in the business, I can sleep at night knowing I am safeguarded.”
He adds, with a verbal shrug of the shoulders, “Why the politicians are arguing over this, I don’t know.”
Persistence Pays Off