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  August 6th, 2017 | Written by

Persistence Pays Off

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  • Crossborder transactions are in a bit of a holding pattern, in part due to politics.
  • Trump’s policies and developments like Brexit have made it harder for some exporters to get financing.
  • Strategies exporters can use to get the financing they need now.

When Aksel Sidem and his two business partners needed financing for their Milwaukee-based company S3 International, LLC, they found that the U.S. Small Business Administration was ready to help—three times.

S3 distributes spare parts to commercial and military customers around the world and repairs aircraft components. It exports to Asia, Europe, North Africa and South America. Jeff Wnuk, the firm’s president, founded the firm in 2005. By 2007, his former colleagues in the industry Sebastien Imbert and Sidem came on board as partners.

That year, the company secured a $300,000 loan from Chase Bank through the SBA Express program. The SBA Express program offers accelerated turnaround of applications for loans from $100,000 to $350,000.

By 2012, S3 was outgrowing its 10,000-square-foot building. The founders obtained two loans totaling $2 million to buy a 25,000-square-foot building and pay for equipment and improvements through the SBA’s 504 program, which provides financing for fixed assets such as real estate. With S3 continuing to grow in 2014, they secured a $5 million line of credit, backed by the SBA. The most recent two rounds of financing came through their current bank BMO Harris. Thanks in part to the three rounds of financing, S3 has grown to 47 employees.

The SBA as a whole has been one of our best allies,” says Sidem, the firm’s general manager, who worked closely with the SBA Office of International Trade’s U.S. Export Assistance Center in Chicago to secure the financing.

Finding the right financing is essential for exporters, especially those in capital-intensive industries. But in 2017, it may require some persistence. Factors such as President Trump’s new immigration policies and threats to pull out of NAFTA—as well as developments like Brexit—have brought uncertainty to international business and made it harder for some exporters to get financing, say industry players. “Cross-border transactions are in a bit of a holding pattern, in part due to politics,” says Andrew Sherman, a partner at Seyfarth Shaw LLP, who has advised many small and midsize businesses involved in international markets. Here are some strategies you can use to get the financing you need now.

Do your due diligence. Before you finance any significant-sized export order, make sure your customer is legit—and solvent. Kathryn Byrne, partner, manufacturing and distribution leader at Mazars USA, an accounting and advisory firm based in New York City, suggests that exporters travel overseas to meet potential customers at their place of business and to speak with local bankers about them. “Get to know their reputation in the city,” advises Byrne.

Also, invest in obtaining a credit report from a provider such as Experian or Creditsafe on a potential customer, says Edwin Hagan-Emmin, CEO and founder of Aztec Exchange, a global supplier of invoice finance products and services that is headquartered in Dublin, Ireland, and has offices in Delaware, Los Angeles and Miami. This will not only help you weed out companies that are not good credit risks but also allow you to negotiate an export finance deal from an informed perspective. As you might imagine, financing a shipment to a client who is perceived as a high credit risk will cost you more than if a client is seen as low-risk, so any information you can share to mitigate a lender’s concerns could save you money. “You can put yourself in a strong position to talk about pricing,” says Hagan-Emmin.

Negotiate contracts carefully. Even if a client has good credit, agreeing to manufacture and ship an entire order without payment up front is risky. By requiring a 40-50 percent deposit, small and midsize export businesses can reduce the risks of not getting paid and increase a bank’s confidence in lending to them.

More likely than not, a bank would give them a very short-term loan for 3-6 months,” advises accountant Eddie Wong, partner in charge of the China Practice Group at Friedman LLP in New York City. “For a well-established larger exporter, a bank would usually give them one year.”

Know your borrowing options. As Sidem discovered, there are many lending programs available to exporters. In addition to the programs he used, there are many export-specific programs run by the SBA. Familiarizing yourself with them before you speak with lenders can help you get more out of your discussions with them.

Here are some of the main export lending programs run by the SBA:

  • The International Trade Loan (ITL). Exporters can apply for term loans up to $5 million with terms of up to 25 years for working capital and the purchase of fixed assets through the ITL program. “We see it being used by exporters who need new machinery and equipment,” says Dennis M. Foldenauer, regional manager, Illinois and Wisconsin, and International Trade Finance Specialist at the U.S. Small Business International Trade, U.S. Export Assistance Center in Chicago, Ill. Loans in this program come with a 90 percent guarantee by the SBA, meaning that the SBA promises to repay the bank 90 percent of the loan if you default. Interest rates for loans less than seven years are 4.25 percent for loans under $25,000; prime plus 3.25 percent for loans from $25,001 to $50,000 and prime plus 2.25 percent for loans over $50,000. For loans seven years or longer, interest is prime plus 4.75 percent for loans under $25,000; prime plus 3.75 percent for loans from $25,001 to $50,000 to prime plus 2.75 percent for loans over $50,000.
  • The Export Working Capital program. Offering a line of credit up to $5 million for financing export transactions, this program offers credit for international receivables and inventory. The program enables banks to advance the exporter up to 90 percent of the value of international receivables, depending on factors such as the riskiness of the receivables. There is no maximum interest rate but the SBA monitors these loans for “reasonableness.”
  • The Export Express program. If you’re in a rush, this program offers financing of up to $500,000 through an expedited process designed to take 36 hours or less. Both term loans and revolving lines of credit are available. Interest loans for loans of $50,000 or less are prime plus 6.5 percent. For loans over $50,000, interest is prime plus 4.5 percent.

Find the right partner. To locate banks in your area that participate in export lending programs run by the SBA, go to Some banks are more active in export lending than others—which gives them a huge edge in expertise—so ask how frequently they make export loans.

Also, inquire about the countries where a lender makes loans. Even if you export to only one country now, you may want to branch out—and an export finance partner with experience in a variety of international markets could offer very valuable insight. “Don’t just think about your customer today,” advises Hagan-Emmin. “Think about whom you would like to have as a customer.”

Ultimately, as you evaluate any potential lenders, ask yourself, “Will this export financier effectively help me to scale up?” advises Hagan-Emmin.

Make sure you’re covered. Some lenders may require you to buy trade credit insurance if they lend you money for an export deal. “It gives banks comfort they will get paid,” says Byrne. One easy place to buy it is through the Export-Import Bank of the U.S. (EXIM Bank), though specialized brokers also sell it. Many exporters opt for a policy such as Small Business Multi-Buyer Credit Insurance, which protects an exporter’s accounts receivable by insuring against nonpayment by buyers. Banks sometimes will allow exporters to treat insured receivables as collateral for a loan.

If you are involved in international development projects, you may also want to look into the Overseas Private Investment Corp.’s OPIC Political Risk Insurance. Its policies protect American firms from political risk associated with overseas development projects—such as a country nationalizing a distribution facility you have built there. OPIC offers coverage in more than 160 developing and “post-conflict” countries.

Consider alternative financing. A traditional bank loan is not the only way to finance your export operations. If you are filling a small order, using a business credit card with a high credit limit may be sufficient. Some exporters turn to factoring their invoices, which is also known as accounts receivable financing. In factoring, you sell your invoices to a specialty finance company known as a factor. The factor provides you with most of the value up front and then pays you the balance of the invoice, after subtracting its fees, once it collects.

The market for export financing has dried up considerably since 2012 or 2013,” says Hagan-Emmin. “A local factoring company, if they have experience in your export market, may well give you a line.” The cost of factoring can vary considerably according to variables like how many invoices you are factoring, but it is usually higher than for bank financing, so make sure you shop around.

Protect yourself. In lieu of getting a loan, some exporters seek a letter of credit from a bank. Issued by the importer’s bank, these are a written commitment to pay the exporter. The letter of credit guarantees payment of a specific amount, as long as the exporter meets certain conditions that are spelled out in the agreement by a certain date.

With a letter of credit, it is pretty much guaranteed that exporters will get paid when they ship the product,” says Wong. In the end, it doesn’t matter how big an export deal is—unless you actually get paid.