Community Affairs Webinar Series Opportunities for Community Banks
Community Affairs Webinar Series Opportunities for Community Banks: FEDERAL GUARANTEE PROGRAMS THAT SUPPORT EXPORT LENDING TO SMALL BUSINESS
YOUR PRESENTERS: Dennis R. Chrisbaum Director, International Trade Finance, SBA Michael Jackson Director, City/State Partners, Ex-Im Bank Teri Ryan Branch Chief, Risk and Asset Management, USDA Foreign Agricultural Service Stephen Fancher President and CEO, Florida Export Finance Corporation James Moschella Examination Specialist, FDIC
National Export Initiative “Because the more products we make and sell to other countries, the more jobs we support right here in America… Tonight we set a new goal: We will double our exports over the next five years, an increase that will support two million jobs in America. To help meet this goal, we're launching a National Export Initiative that will help farmers and small businesses increase their exports…” President Barack Obama State of the Union Address January 27, 2010
National Export Initiative Announced March 11, 2010 by President Goal 1. Double exports in five years 2. Create two million new jobs 1. 2. 3. 4. 5. Actions Create Export Promotion Cabinet Increase technical assistance Increase export financing Increase business advocacy Strengthen trade agreements
The Export Promotion Cabinet, July 2012 To Maximize the Effectiveness of Federal Programs, the Federal Government will: (1) increase the national base of small- and mediumsized enterprise exporters by 50, 000 by 2017, (2) expand the reach of federal export assistance— including trade financing--and counseling to small businesses, and (3) ensure better delivery of export promotion services domestically and overseas.
U. S. Global Business Solutions Export Promotion Cabinet, Objective #2: Expand Access to Small Business Trade Financing Problem 1) trade financing perceived as too complex by many lenders 2) not high volume nor profitable for lenders Solution 1) reduce the complexity and present a streamlined package of financing options, 2) focus only on mainstream products with greater volume potential
Separating Facts from Myths Myth “Small businesses don’t export. ” Fact • 296, 000 SMEs (98% of all exporters) exported more than $700 billion in 2011, representing 33. 3% of all known U. S. exports. • Very small companies (fewer than 20 employees) account for 70 percent of all exporting firms. • Find out how important exporting is to your state: http: //www. trade. gov/mas/ian/statereports/.
Perception vs. Reality Lender Perception “Lending to exporters is too risky” Reality Out of all of the SBA Sub-program codes, the Export Working Capital program has the lowest loss rate and the lowest default rate.
Perception vs. Reality Lender Perception “We can’t use SBA export loan programs, since our bank doesn’t have an international department. ” Reality • An international department isn’t necessary. • The SBA/Ex-Im Bank USEAC Regional Managers will work with any bank to walk them through the process. • SBA loans are made to your customer down the street, not to a foreign entity in Mexico, China, or elsewhere.
One-Stop Shop for Export Business Needs Goals of Export Promotion Cabinet • Grow revenues and jobs through exports and the number of SB exporters—add 50, 000 by Dec. 2017 • Expand the base of financial institutions and service providers who facilitate exports—add 250 trade financing originators by Dec. 2015 Solution to Increase Access to Trade Finance • Reduce complexity by packaging trade financing and marketing options that seamlessly meet exporter needs • Simplify marketing materials and increase outreach and training to meet the needs of their financial institutions • Streamline access to international experts, credit products, and business services for exporters and lenders—build volume
One-Stop Shop for Export Business Needs Strategy • Tailor the options to the stage of exporter development and capacity of the financial institution • Combine key trade and commercial finance products and services in a single menu of options made for mainstream use: U. S. Global Business Solutions • Offer a seamless, low-cost transition among options • Provide a menu of customized financing solutions for more advanced exporter needs: The Specialized Global Solutions (SGS) program
What Might a SME Need? Working Capital for Export Development: • Attend trade shows • Secure CE mark, international patent or trademark • Meet potential business partners • Vet potential buyers, agents or distributors and purchase foreign credit reports • In-country promotions • Translation of website/product literature and other marketing costs
Solution: SBA Export Express Profile: • to $350, 000 with 90% guaranty • $500, 000 with 75% guaranty • Processed by SBA-approved Export Express lenders • Working capital: 7 years; Fix assets: up to 25 years Required: • Entering or expanding in foreign market • In business for at least 12 months (can be waived by lender if the applicant’s key personnel have export expertise and successful business experience and lender does conventional underwriting, not relying on credit scoring)
Solution: SBA Export Express Proceeds may be used for any “export development activity, ” such as: • Translation of product literature or website • Participation in a trade show or on a trade mission • transaction-specific financing of export deals, including standby letters of credit • general lines of credit for export purposes • term loans for permanent working capital, machinery, equipment, or real estate used in the production of goods or services for export
What Might a SME Exporter Need? Working Capital and Credit Insurance for Export Orders: • Inventory, materials, labor, other production costs • Foreign accounts receivable insurance • Insurance and freight costs • Bank fees related to the transactions • Standby-letters of credit to guarantee bid, performance, or advance payments
Working Capital for Export Transactions 1. SBA Export Express—to $500, 000 • Guaranteed loan; 7 years maximum working capital 2. Ex-Im Bank’s Global Credit Express—to $500. 000 • Direct loan, if credit is not elsewhere available • Provides businesses with export history or orders with short-term, working capital • Terms: either 6 or 12 -month revolving line of credit • Line can support general expenses of exporting, including export development and transactional costs. • Credit scored
Working Capital for Export Transactions 3. SBA Export Working Capital—to $5 million • • • 90% guaranty; $4. 5 million guaranty Maximum term, 3 years; typically, 1 year Guaranty fee if 12 months or less: . 25% (1/4 of 1%) Transaction-Based Financing (Purchase order financing) • Single Order or Revolving Line • Most supplier and production costs through collections Or, Asset-Based Line-of-Credit • W/C for pre-shipment, post-shipment or both • Borrowing Base: inventory, WIP, (insured) A/R Advance rates: • up to 75% against inventory and WIP • up to 90% against foreign accounts receivable
Working Capital for Export Transactions 4. SBA Working Capital Cap. Line • Up to $5 million loans with 75% guaranty • Maximum term: 10 years • Benefit: One line to support both domestic and international sales • Required: credit insurance on foreign A/R • One-to-one collateral ratio: – Advance rates up to 50% against inventory and equipment; – 80% against A/R and real estate
Mitigate Transactional, Non-Payment Risk Solution: Ex-Im Bank’s Trade Credit Insurance • Up to 95% coverage against non-payment due to commercial and political risk • Express Insurance: 5 day turn-around, up to 20 buyers • Insure world-wide buyers or single buyer—policy options Benefits: • • Marketing—bigger orders Financing—can add to borrowing base Reduced complexity—no need for letters of credit Health—sleep at night Cost: • ~65 cents per $100 invoiced amount • 25% discount paired with any SBA or Ex-Im Bank loan
What Might an Experienced SME Exporter Need? Term Loan for fixed assets: • Machinery or equipment to expand production in order to meet foreign demand • Retooling expenses necessary for metric production or to meet other standards • Permanent working capital • Real estate needed as a result of expanding export sales
Solution: SBA International Trade Loan Summary: • A 7(a) loan up to $5, 000 for plant and equipment • maximum guaranty: 90% up to $4. 5 million • either: a) expanding because of exports, or b) adversely impacted by imports and c) will improve company’s competitive position • a combination of fixed assets or term loan with W/C -- maximum Working Capital guaranty: $4, 000 • maximum term: 25 years; 10 years for working capital • refinancing is allowed • can be process by PLP lenders • can be used for “on-shoring” if conditions above met • business plan required--application must document eligibility requirements (i. e. export projections or evidence of adverse impact by imports)
All Four SBA Loans Can Be Used to Support Indirect Exports • Applicants who produce products or services that enter into the export channel, but do not directly export their products – Manufacturers using an Export Trading Company – Suppliers to other domestic manufacturers that export directly • Requires certification from domestic customer that goods are, in fact, being exported.
What Else Might an Experienced SME Exporter Need? Term Loan for the Foreign Buyer: • Ex-Im Bank’s Medium Term loan guarantee to a lender that finances a foreign buyer’s purchases of U. S – made capital equipment and any related services. • BENEFITS: Enables an exporter to sell large ticket capital equipment to a foreign buyer on favorable credit terms generally between 1 and 5 years and be cashed-out up front by a lender • ELIGIBILITY: Products must be of U. S. origin. Buyer must make a minimum 15% cash down-payment. • COST/FEES/TERMS: A variable exposure fee is based on the risk of the transaction and a commitment fee of 0. 125%. The interest rate is negotiated between the lender and the foreign borrower. • RESTRICTIONS: Lenders must have a Master Guarantee Agreement in place to participate.
What Else Might an Experienced SME Exporter Need? Working Capital Over $5 million: • DESCRIPTION: To purchase finished goods, raw materials, labor and fund overhead costs to fulfill export sales orders or to post a bid or performance bond. Guarantee 90% of the loan amount. • BENEFITS: Offers generous advance rates (up to 75% on inventory and work-in-process, and up to 90% on foreign A/R). • HOW IT WORKS: Lender either approves under their own “delegated authority” or sends to Ex-Im for concurrence. Loans may be revolving lines of credit or transaction-specific. • ELIGIBILITY: Company must be in business for at least one year with financial statements available on its operations. Goods and /or services exported must be of U. S. origin. • COST/FEES/TERMS: $100 processing fee. 1. 75% annually, 1. 25% available on a case-by-case basis for lower-risk transactions. Interest rate on the loan and any other fees are set by the lender.
USG Programs for Your Export Customers A. Export Development --SBA Export Express—to $500, 000 B. Working Capital --SBA Export Express—to $500, 000 --SBA’s Export Working Capital—to $5 million --SBA’s Cap. Line—to $5 million --Ex-Im Bank’s Global Credit Express—to $500, 000 --Ex-Im Bank’s Working Capital—over $5 million C. A/R Payment Risk Mitigation --Ex-Im Bank’s Trade Credit Insurance programs D. Foreign Buyer Financing --Ex-Im Bank’s Medium Term Loan Program Please USE Them!
Ex-Im Bank Field Offices Regional Export Finance Centers Midwest Chicago Regional Export Finance Center Michael Howard: 312 -353 -8081 Western Orange County, CA Regional Export Finance David Josephson: 949 -660 -1341 Detroit John Toles: 313 -309 -4158 San Francisco Field Office James Lucchesi: 415 -705 -2285 Minneapolis Denis Griffin: 612 -348 -1213 Seattle John Brislin: 206 -728 -2264 Northeast and Mid-Atlantic New York Regional Export Finance Center Thomas Cummings: 212 -809 -2650 Southeast Miami Regional Export Finance Center Sharyn Koenig: 305 - 526 -7436 Southwest Houston Regional Export Finance Center Patrick Crilley: 281 - 721 -0465 Atlanta Susan Kintanar: 404 - 897 -6082 North Texas Branch Mc. Kinney (Dallas), TX Kelly Kemp: 214 -551 -4959
SBA’s Network of Trade Finance Specialists at U. S. Export Assistance Centers ATLANTA Territory: Georgia, Alabama, Kentucky, West/Central Tennessee Sandro Murtas 404 -815 -1496 ARLINGTON, VA Territory: Virginia, Maryland, District of Columbia, West Virginia, Delaware William Houck 202 -557. 4063 BOSTON Territory: Maine, Vermont, New Hampshire, Massachusetts, Connecticut, Rhode Island John Joyce 617 -565 -4305 CALIFORNIA IRVINE Territory: Southern California, Southern Nevada, Arizona Martin Selander 949. 660 -8935 SACRAMENTO Territory: Northern California - Fresno to the Oregon border, Northern Nevada, Hawaii, Guam Jerry R. Avila 916 -735 -1708 CHARLOTTE Territory: North Carolina, South Carolina, Eastern Tennessee Dan Holt 704 -333 -4886 x 226 CHICAGO Territory: Wisconsin, Illinois, Iowa John Nevell 312 -353 -8065 CLEVELAND Territory: Ohio, Western New York, Western Pennsylvania, Patrick Hayes 216 -522 -4731 DALLAS/FORT WORTH Territory: Texas, Oklahoma Rick Schulze 817 -684 -5506 MINNEAPOLIS Territory: Minnesota, North Dakota, South Dakota Carlos Sosa 612 -348 -1642 NEW ORLEANS Territory: Louisiana, Arkansas, Mississippi Pellson Lau 504 -589 -6730 NEW YORK CITY Territory: New York City & 5 Boroughs, Eastern Upstate New York, New Jersey Toni Corsini 212 -809 -2645 PHILADELPHIA Territory: Eastern Pennsylvania Robert Elsas 215 -597 -6110 DENVER Territory: Colorado, New Mexico, Utah, Wyoming Bryson Patterson 303 -844 -6623 ext. 218 PORTLAND Territory: Oregon, Southern Idaho, Montana Jeff Deiss 503 -326 -5498 DETROIT Territory: Michigan, Indiana John O'Gara 313 -872 -6793 SEATTLE Territory: Washington, Alaska, Northern Idaho Pru Balatero 206 -553 -0051 ext. 228 MIAMI Territory: Florida , Puerto Rico, Virgin Islands Mary Hernandez 305 -526 -7425 ext. 21 ST. LOUIS Territory: Kansas, Missouri, Nebraska John Blum 1314 -260 -3788
Questions Primary Contacts: Dennis R. Chrisbaum, SBA Dennis. Chrisbaum@sba. gov; 202. 205. 6885 Michael Jackson, Ex-Im Bank Michael. Jackson@exim. gov; 202. 565. 3479
GSM 102 EXPORT CREDIT GUARANTEE PROGRAM FOREIGN AGRICULTURAL SERVICE United States Department of Agriculture FACILITATING TRADE FINANCE
GSM 102 • It’s not a loan… WHAT IS GSM 102? • It’s not a grant… • It’s a guarantee Backed by the full faith and credit of the United States Government
GSM 102 PURPOSE OF THE PROGRAM Promotes the export of U. S. agricultural products by facilitating the financing component via a credit guarantee. USDA guarantees the letter of credit to emerging markets where sales may not occur without the financing and guarantee.
GSM 102 Objective Terms PROGRAM DESCRIPTION • Protects U. S. exporters or U. S. banks against the non-payment of the importer’s foreign bank under a Letter of Credit (L/C) • • Coverage • Guarantees up to 98% of the loan principal Covers a portion of the interest Fees are based on country risk and length of financing Fees dependent on frequency of principal repayments Coverage up to 2 years Over 190 agricultural products Freight costs are usually covered Over 140 banks covered in almost 80 countries
GSM 102 PROGRAM PARTICIPATION • Approved Countries/Regions • Approved Foreign Banks • Qualified U. S. Exporters • Approved U. S. Banks • Importers do not need to be approved
MISCONCEPTION GSMS 102 GSM-102 is… • Not just for bulk commodities • High-value processed products are also covered • Not just for large corporations • Approximately 47% of participants are SME’s • Not just for large dollar transactions • Transaction sizes have no minimum. Many are under $1 million USD
ELIGIBLE COMMODITES GSM 102 ü 100% produced in USA ü High-Value products (90% U. S. Content) Consumer-ready - Intermediate - Bulk
GSM 102 Guarantee fee (fully transparent) Cost of L/C Financing costs HOW MUCH IS THIS GOING TO COST?
GSM 102 COMPARISON WITHOUT GSM 102 reluctant to U. S. exporter WITH GSM 102 U. S. exporter more likely to ship without being paid in advance since USDA carries 98% of the risk and payment is received upon presentation of documents Bank in region may be unwilling to provide credit to importer Presence of loan term extended by the U. S. bank to the foreign bank may encourage extension of credit by the foreign bank to the importer Any financing to importer may have very short repayment terms & higher interest rates Carry 100% Risk Importer now in better position to negotiate favorable loan terms with GSM-approved bank in the region Carry 2% Risk
GSM 102 BENEFITS TO U. S. BANKS Less risk – USDA assumes almost all risk in the event of nonpayment Ability to leverage country & foreign bank limits Reduce capital requirements due to USDA guarantee Ability to lend up to 2 years Ability to lend at reduced rates because of USDA guarantee Establish or improve correspondent banking relationships Service U. S. exporter clients & expand Foreign Bank relationships
BENEFITS TO AN EXPORTER GSM 102 § Open new markets and expand sales where risk may be greater § Minimal cost – fees average about 1 percent § Reduce importer and foreign bank risk § Get paid quickly by assigning guarantee to U. S. bank and delivering shipping documents that conform with L/C § Ability to lower all-in-costs to the buyer
GSM 102 U. S. Bank HOW TO GET STARTED? Provide most recent audited financial statements Documentation from federal or state agency regulator Identify shareholder ownership & management Contact information of principal and U. S. regulator 40
GSM 102 HOW TO GET STARTED? Get a DUNS number Submit qualification application Exporter Negotiate sales contract with buyer Contact U. S. bank (if assigning guarantee) Submit request for guarantee/pay guarantee fee 41
GSM 102 MARKETS Africa & Middle East Central Asia Russia Southeast Asia Caribbean China South America Turkey Central America Mexico South Korea Vietnam
GSM 102 REGISTRATIONS (USD BILLIONS) $5. 32 billion $4. 12 billion $3. 11 billion $3. 09 billion $1. 44 billion . 26% . 49% 5. 23% 4. 23% $4. 13 billion
GLOBAL USAGE GSM 102 FY 2011 – 2012 (in USD millions) 1200 800 600 2011 400 2012 200 na *E ur /H as K ia /R us si a S. Ko re a M ex ic So o ut h Am. SE As ia Tu rk ey . Ch i Am al nt r Ce Ca r ib be an E 0 AM $ USD Millions 1000 +Eurasia Region discontinued in 2012
TOP COMMODITIES GSM 102 Other Beef 11% 2% Breeding Cattle 3% Rice 3% Cotton 6% FY 2012 Soybeans 26% Soybean Meal 11% Wheat 18% Yellow Corn 20%
GSM 102 FY 2013 PROGRAMMING Country/Region ($5. 5 Billion per Farm Bill) Africa/Middle East Region $ 400 Million Caribbean Region $ 300 Million Central America Region $ 550 Million Central Asia Region $ China Region $ 200 Million Korea, South $1, 000 Million Mexico $ 400 Million Russia $ 250 Million South America Region $ 600 Million Southeast Asia Region $ 450 Million Turkey $ 700 Million Vietnam $ 100 Million Reserve $ 500 Million TOTAL: $5. 5 Billion 50 Million
ADDITIONAL INFORMATION See how your business can benefit from GSM-102 Contact Us Teri Ryan 202. 720. 0663 teri. ryan@fas. usda. gov www. fas. usda. gov/excredits/ecgp. asp FOREIGN AGRICULTURAL SERVICE United States Department of Agriculture
Florida Export Finance Corporation FEFC A not for profit corporation created and funded by the State of Florida by the Florida Export Finance Corporation Act of 1993 FL. Statutes 288. 770 -288. 779.
Legislative mandate to increase job opportunities and income for residents of Florida by providing financial, technical and consulting assistance to small and medium sized Florida Companies in support of their export sales.
Ø FEFC financial assistance is available only for exporters and transactions which Ø meet the following requirements: The exporter/borrower must be registered to do business in Florida and be able to produce a current corporation, partnership or proprietorship registration. Ø The exporter/borrower must have less than 250 employees are included in this requirement. Full and part time Ø The exporter/borrower must have less than $6, 000 of net worth. Ø The equity owner of the exporter/borrower must sign the FEFC application, all loan documents, and personally guarantee the loan. Ø The exporter/borrower must have a specific and verified order from a foreign buyer and the loan must be made to support the order. Ø The goods or services must be shipped from Florida. Ø The maximum FEFC guarantee amount is 90% of the loan or $500, 000, which ever is the lowest. Ø The maximum term for guarantee is one year.
FEFC will not offer financial assistance to companies that qualify for the Ex-Im Bank or the SBA Working Capital Loan Guarantee programs. Most likely reason for non-qualification for these federal government programs is lack of collateral, short time in business, lack of profitability, or poor financial conditions.
FEFC will issue a guarantee for 90% of a working capital loan made by a lender to an approved exporter up to a maximum liability to FEFC of $500, 000. The guarantee is subject to certain conditions which the lender must adhere to.
IMPO RTA NT 1. 2. 3. 4. The most important are as follows: The loan must be revolving. Loan advances are not given to the borrower, only to a supplier and in payment of items required in order for the borrower to fill a qualified foreign order. In some cases the borrower (sometimes the lender) must obtain trade credit insurance covering nonpayment by the foreign buyer. FEFC will help in obtaining such insurance. All payment from the foreign buyer must be sent directly to the lender.
F EF C The FEFC Guarantee may prevent a small business loan from being “Classified” by the bank regulators.
Ø Medium term (over 1 yr. ) loans commitments arranged on behalf of small Florida exporters $1, 797, 665, 000 Ø Export value of Political and Credit Risk Insurance arranged to support sales of small Florida exporters $ 248, 800, 000 Ø Export value covered by FEFC loan guarantee commitments for small Florida exporters $ 393, 731, 000 Ø Total value assisted (100% small business/approx. 72% minority and women owned) $2, 440, 196, 000 Ø Total for 2012 activities $ 48, 970, 000 Ø Total Grants received (1993/2012) $12, 590, 000 Capital - $1, 000 Operating Expenses $ 13, 590, 000 Ø Net Worth of FEFC - 12/31/12 $ 9, 578, 658 Total number of seminars FEFC seminar attendance - Exporters - Bankers Ø 382 13, 074 2, 498 FEFC Status - Non stock not for profit corporation with IRS 501(c)3 status 13 Member Board of Directors (3 Government/10 Private Sector) Loan Defaults – 25 ($3, 710, 991 Net Loss) Ø Legislative Mandate - To increase job opportunities and income for residents of Florida by providing financial, technical, and consulting assistance to small and medium sized Florida companies in support of their export sales.
5. 3 70, 000 3, 850
Regulatory Perspectives Filename 59
Regulatory Benefits Portion of the loan guaranteed could receive a preferential capital risk weight under Part 325 of the FDIC Rules and Regulations. Filename 60
Risk Issues Have the right people, policies, and procedures in place before entering a new business line. Filename 61
Risk Issues Fully understand the guarantying agency’s requirements for underwriting, servicing, and liquidation processes. Filename 62
Risk Issues Know your customer from the Credit Risk, Anti-Money Laundering, and Office of Foreign Assets Control (OFAC) perspectives. Filename 63
Risk Issues Execute proper due diligence prior to entering into any third-party vendor relationship. Filename 64
Reference Material Supervisory Insights, June 2011 - SBA Lending: Insights for Lenders and Examiners http: //www. fdic. gov/regulations/examinations/supervisor y/insights/sisum 11/examiners. html Small Business Lending Initiatives http: //www. fdic. gov/consumers/banking/businesslending /index. html Filename 65
Reference Material FIL-44 -2008 - Guidance for Managing Third Party Risk http: //www. fdic. gov/news/financial/2008/fil 08044. html Bank Secrecy Act Guidance http: //www. fdic. gov/regulations/examinations/bsa/index. html Jim Moschella, Examination Specialist jmoschella@fdic. gov 917 -320 -2542 Filename 66
FOR FURTHER INFORMATION: Email us at: Community. Affairs@FDIC. gov Check back with our website: www. fdic. gov • • • An archived version of this presentation Links to agency websites Additional resources
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