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Government Loans for Your Exporting Business
On: February 16, 2022 | By: David Noah | 6 min. read
Most U.S. banks consider loans for exporters risky, in part because payment challenges are an unavoidable part of international trade. It usually takes longer to get paid compared to doing business domestically.
Statistics indicate that the later you receive payment, the higher the risk of non-payment and the greater the strain on your working capital. This means that protecting against non-payment is a key concern for exporters, and also why it can be more difficult for exporters to get typical bank loans for things including day-to-day operations, advance orders with suppliers and debt refinancing.
Exporters around the world have the same problems and concerns, but with the assistance of government programs companies successfully pursue exports. The U.S. government and other export-friendly entities have created programs that make it easier for U.S. small businesses to get export loans. Here are four types of loans you may qualify for as an exporter in the United States.
1. Small Business Administration (SBA) Loans
The U.S. Small Business Administration (SBA) has made it a priority to help small business exporters by providing a number of loan programs specifically designed to help develop or expand export activities. The SBA has three loan guarantee programs to help small businesses access the capital needed to provide goods and services to the global marketplace. Lenders participating in SBA loan programs are able to make loans on terms and conditions that would otherwise be unavailable to help small and medium companies export.
The three programs are:
This is the SBA’s simplest export loan program and offers streamlined financing up to $500,000. The program provides working capital and/or fixed asset financing for companies that will begin or expand exporting. Export transactions (including support for standby letters of credit), export development expenses (including trade show participation), and translation of product literature are a few of the items covered.
This program offers financing up to $5 million as a credit enhancement, delivered through SBA Senior International Credit Officers located in U.S. Export Assistance Centers.
This assistance provides financing to support export orders or the export transaction cycle, from purchase order to final payment. Some of the qualifying uses include raw materials, inventory, labor and the resulting foreign accounts receivable, and overhead costs incurred to fulfill an export sales order.
Most banks in the U.S. do not provide working capital advances on export orders, export receivables or letters of credit. Because of that, some small businesses may lack necessary working capital to support export sales. That is where an SBA program can make the difference. SBA provides lenders with up to a 90% guarantee on export loans as a credit enhancement, so that the lenders will make the necessary export working capital available.
Exporters can apply for EWCP loans in advance of finalizing an export sale or contract. With an approved EWCP loan in place, exporters have greater flexibility in negotiating export payment terms—secure in the assurance that adequate financing will be in place when the export order is received.
This program provides small businesses with enhanced export financing options for their export transactions. It is designed to help small businesses enter and expand their international markets and, when adversely affected by import competition, make the investments necessary to better compete.
Eligibility for SBA Loans
Lenders and loan programs have unique eligibility requirements. In general, eligibility is based on what a business does to receive its income, the character of its ownership and where the business operates. Normally, businesses must meet SBA size standards, be able to repay and have a sound business purpose. Even those with bad credit may qualify for startup funding. The lender will provide you with a full list of eligibility requirements for your loan.
2. EXIM Bank Loans
The Export-Import Bank of the United States (EXIM Bank) offers working capital loan guarantees to U.S. exporters. EXIM works with private lenders to secure financing for international sales.
EXIM’s Working Capital Loan Guarantee can help exporters unlock cash flow to fulfill sales orders and take on new business abroad. This program enables small- and medium-sized U.S. companies to obtain loans to produce goods and services for export. With this program, you can arrange a loan from a commercial bank guaranteed by EXIM Bank. These funds enable you to purchase raw materials, supplies and equipment to fulfill your export sales order.
EXIM has generous advance rates and accepts a broad range of collateral for loans that generally extend one year, but that can go up to three years. This loan guarantee covers 90% of the commercial loan. These loans must be secured by export-related collateral.
A lender can advance your company up to 90% for accounts receivable and up to 75% for inventory and work-in-progress. If you post bid or performance bonds to support an export order, the EXIM Bank only requires a 25% collateral pool.
This program provides exporters and lenders protection against international buyer default. It minimizes political and commercial risk of buyer nonpayment, extends credit terms to international buyers leading to increased sales, and increases exporters’ borrowing capacity and cash flow.
Eligibility for EXIM Bank Loans and Insurance
You can learn more about EXIM bank loan eligibility by scheduling a consultation with a specialist online.
3. USDA’s Export Credit Guarantee Program (GSM-102)
For commercial exporters of U.S. agricultural commodities, the USDA offers the Export Credit Guarantee Program (GSM-102). The GSM-102 program guarantees credit extended by the private financial sector in the United States (or, less commonly, by the U.S. exporter) to approved foreign financial institutions using dollar-denominated, irrevocable letters of credit for purchases of U.S. food and agricultural products by foreign importers.
Eligibility for USDA Loans
USDA’s Foreign Agricultural Service (FAS) administers the program on behalf of the Commodity Credit Corporation (CCC), which issues the credit guarantees. You can click here to learn more about participation and the program’s eligibility requirements for countries and commodities. To apply, click here.
4. U.S. International Development Finance Corporation Loans (DFC)
The DFC offers direct loans and guaranties of $50 million to $1 billion for projects in critical infrastructure, energy and other projects requiring large investments. DFC offers specific financing programs targeting small and medium U.S. businesses. They offer two main products: direct loans and partial loan guaranties.
Eligibility for DFC Loans
Learn More about Export Financing
Learn the fundamentals of trade finance so you can turn your export opportunities into actual sales—and get paid on time—in our free white paper, Trade Finance Guide: A Quick Reference for U.S. Exporters.
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About the Author: David Noah
David Noah is the founder and president of Shipping Solutions, a software company that develops and sells export documentation and compliance software targeted at U.S. companies that export. David is a frequent speaker on export documentation and compliance issues and has published several articles on the topic.