Ex Im Bank Lends Support
Ex-Im Bank is the nation's official export credit agency and its job is to assist in financing the export of U.S. goods and services to international markets.
Ex-Im Bank helps U.S. companies of all sizes capitalize on export opportunities by providing them with working capital guarantees, or pre-export financing, export credit insurance, loan guarantees and buyer financing. According to the agency, an average of 85 percent of its transactions directly benefit U.S. small businesses.
The bank doesn't compete with private lenders; rather, it offers export-financing products that fill gaps in trade financing.
"The reason Ex-Im exists is to build jobs in the United States," said Martha Gabrielse, vice president of global trade services for Bank One/J.P. Morgan Chase. "They sit in D.C. and come up with all these export financing programs, but they need us — the commercial banks — to actually be the folks who deliver these products to the companies. We are the people who are out in the trenches meeting with all these middle market companies that need the help. So we're multipliers for Ex-Im and partners with them."
Gabrielse said a very successful loan product that Bank One commercial lenders see a lot of is the SBA's Export Working Capital Program, which is a combined effort of the U.S. Small Business Administration and Ex-Im Bank.
The program encourages commercial lenders to offer U.S. companies export working capital loans by guaranteeing repayment of up to $1.5 million or 90 percent of the loan, whichever is less. The loan can cover a single transaction or multiple sales on a revolving basis, according to the SBA.
Say a company has an opportunity to build specialized testing equipment for Hyundai for export to Korea but needs some additional working capital to build the equipment.
The company's bank may agree it's a wonderful opportunity with a great contract and a great buyer, but knows the company would really be stretching its limits by adding another $2 million to its borrowing.
"So the bank turns to the Ex-Im Bank and asks if it will guarantee a loan. It works just like the SBA," Gabrielse explained. "Bank One has a $10 million in-house authority, so we can look at deals of up to $10 million and approve them in-house without getting Ex-Im Bank's approval, because they trust us. There are a number of banks Ex-Im works with on that. We have what's called super-delegated authority."
Banks that have good reputations for their underwriting, have been out there supporting these programs, and have a good relationship with Ex-Im receive the super-delegated authority, she said.
"Fifty percent of what they're exporting has to be U.S. value and there's other criteria that we pre-qualify with our customer to determine if it fits within the program. Then we receive a guarantee from the government," she explained. "Because we have a delegated authority, we can do that in a matter of weeks, as opposed to a couple of months if you have to go to Ex-Im Bank all by yourself and try to do this."
Whether it's capital equipment, consumer goods or a service, anything that a company is exporting to a foreign market can be supported by some kind of an Ex-Im Bank program, she said.
The Export Working Capital Program works just like the normal working line of capital. It provides the company with the working capital to manufacture a product and ship it. But it does not provide any guarantee for the foreign receivable, Gabrielse pointed out. There are other products Ex-Im provides to take care of that risk.
An example would be when a foreign buyer wants to purchase a large machine for its factory from a U.S. company but needs to borrow money to pay for it. In a situation like that, Ex-Im can insure the foreign receivable, the bank could lend to the foreign buyer and the bank could turn to Ex-Im for settlement if the loan goes unpaid.
There are fees that go along with the program, just as there are with SBA programs. Gabrielse said, in general, companies needing to borrow working capital of less than $1 million will find that the cost to use the program vs. the benefit of having the extra working capital available might not necessarily make sense. Each bank customer has to go through a cost-benefit analysis to determine that.
Ex-Im Bank has been around 70 years, and by its own estimate has supported more than $400 billion in U.S. exports, primarily to developing markets throughout the world.
"It's nothing new, but what has happened is that for years, people thought of Ex-Im as 'Boeing's Bank' because for years they tended to do large, bazillion-dollar deals for the ultra large corporations like the Boeings of the world," Gabrielse observed. "But in the last decade, Ex-Im has really reached out more to the middle market companies and its program has become easier to use."
Ex-Im Bank gives companies access to capital at very competitive rates, she pointed out, and that allows the bank to remain very competitive and keep those rates down, because the bank gets a 90 percent guarantee from the government on the loan principal.
Ex-Im Bank's working capital program and related products seem to be growing more popular. In the last five years, Ex-Im has helped provide export financing and products to more than 50 companies in Michigan.
"We're seeing a spurt in activity because manufacturing is growing again overseas, and, naturally, we see a lot of it in. I'm working on a couple of deals right now that are Latin America oriented. And it's not all automotive; it's in different sectors. It's a nice trend we're seeing."