SBA opens export doors

Small shippers benefit from federal agency’s trade support programs.

By Eric Kulisch

The U.S. Small Business Administration is taking an increasingly active role in trying to identify and encourage small businesses to get involved in international trade.
   During the weak post-recession recovery exports have continued to be one of the strongest areas of the U.S. economy, but officials and trade experts say that many American companies are ignoring the potential to increase sales and profits by expanding into overseas markets. 
   Exports of goods and services increased 16.6 percent in 2010 to $1.83 trillion and through August are up another 16 percent to $1.39 trillion from the same eight-month period a year ago. But only 1 percent of U.S. companies export.
   Getting small businesses to consider cross-border trade is a major point of emphasis for the Obama administration and its National Export Initiative, which seeks to double exports from 2009 to 2014.
   The small business sector employs half of the U.S. workforce and creates two out of every three new jobs.
   A big part of the government’s effort to promote exports is to demystify the perception that trade — with all of its regulatory, logistical and cultural challenges — is too complex for the average company.
   The Small Business Administration (SBA) has devoted more resources to recruiting small firms interested in expanding overseas, for the first time or to additional countries, and giving them the technical assistance they need to get started.
   “As we’re coming out of the worst economic downturn since the Great Depression it’s really critical that small businesses have all the opportunities to grow as they possibly can because they are the job creators,” Marie Johns, the SBA’s deputy administrator said at an Oct. 17 forum hosted by the Washington Post.
   Small businesses represent the majority of companies that export, but only 30 percent of the revenues, she said.
   The Small Business Jobs Act signed by President Obama in the fall of 2010 provided the SBA more capability to provide export assistance, according to Johns.
   The agency has since created an Office of International Trade to give greater visibility to export-related functions, which previously were buried in the Office of Capital Access, and installed an international trade officer in each of its 68 district offices around the country.
   There are also trained counselors at hundreds of small business development, veteran’s and women’s business centers.
   The experts work to match companies with potential buyers, refer them to the Commerce Department’s International Trade Administration (ITA), and help them find access to capital through its own loan program, the Export-Import Bank or other sources.
   Last March, the SBA launched the State Trade and Export Promotion (STEP) Program and in September announced $30 million in grants to states to help small businesses export during the next year.
   The funding will support participation in foreign trade missions, foreign market sales trips, subscriptions to services provided by the Commerce Department, Web site translation fees, design of international marketing media, trade show exhibitions, participation in training workshops, and other marketing assistance provided by state economic development agencies.
   The Texas Department of Agriculture, for example, will use its $161,711 grant to develop business opportunities for farmers in China, the United Arab Emirates and South Korea.
   States must contribute 25 to 35 percent of the funding for program costs.
   The SBA said it plans to conduct a new competition for STEP grants during the winter, with awards made the following September.
   New exporters should also take advantage of programs offered by state programs, Trade Adjustment Assistance Centers, the ITA’s Commercial Service and the Ex-Im Bank, Drew Greenblatt, president of Baltimore-based Marlin Steel, said.
   The Maryland Department of Business and Economic Development, for example, provided grants that helped his company develop Web sites in Korean, Spanish, French, German and Japanese to better reach industrial customers in those countries, he said.
   Marlin Steel fabricates wire baskets and metal racks for pharmaceutical, automotive and other applications. Exports represent 20 percent of its revenue.
   The Commerce Department, through its Economic Development Administration, has a network of 11 Trade Adjustment Assistance Centers that are managed by regional, non-profit organizations. Their job is to help manufacturers affected by import competition obtain matching federal grants of up to $75,000 to help offset the cost of consultants, as well as engineering, design, manufacturing, information technology, management and quality assurance improvements. 
   The department’s Commercial Service has trade counselors in 85 countries in addition to the United States. It produces publicly available reports and can also conduct specialized research to help determine the marketability of a specific product, develop sales strategies and help find agents or buyers.
   One of its popular programs is called the Gold Key Service, which for $700 will pre-screen four to six companies in target markets and set up meetings.
   Greenblatt said the Commercial Service was indispensable in making a sales trip to Korea and Vietnam a success. ITA professionals identified companies to approach, set up appointments, arranged transportation and provided a translator. “If it wasn’t for them it would not have been an effective trip,” he said. 
   The Commercial Service frequently organizes trade missions, which typically generate about $50 million in sales activity. Next spring it has scheduled one with stops in Thailand, Vietnam, Singapore, Malaysia and Indonesia. It plans to bring all of its top commercial diplomats from the entire Asia region to Singapore so participating companies can meet with them in one location, develop a business plan “and then do this speed dating to meet customers in those five markets,” William Burwell, director of the Commercial Service’s Maryland office said.
   The trade missions cost about $2,000 per person.
   “So it’s a very big return on investment for your travel dollar. Instead of making 14 trips you can make one or two or three trips out of Singapore and get to all these markets,” he said.
   Greenblatt said accompanying Maryland Gov. Martin O’Malley on a recent trade mission to Asia helped open doors to new prospects.
   “When a governor goes abroad it’s very helpful because what happens is the welcoming companies on the other side are impressed you’re going with the governor. It gets you entrée that you never would get. It gets you exposure inside a company at high levels,” he said. 
   In fiscal year 2011, the Ex-Im Bank set a record with $30 billion in export credit authorizations. The organization offers pre-export and post-export financing.
   Working capital loan guarantees help firms get loans from commercial lenders to pay for raw materials, labor, supplies and other initial costs to meet overseas orders. Under the program, the Ex-Im Bank will guarantee 90 percent of the lender’s money, either for a specific transaction or on a revolving basis.
   Trade credit is slowly opening up after the 2008 financial crisis and “banks are ready to lend” with the support of the SBA and Ex-Im Bank, Michael Filchock, director of global trade solutions for SunTrust Banks, said. Lenders will still closely scrutinize a company’s health, including factors such as how long it has been in business, its management expertise and finances, he added. 
   The guarantees help banks supply loans “because by putting a U.S. guaranteed loan on the books the capital requirement the bank has to set aside is much lower than for a conventional loan,” he said.
   Another useful product for exports is the Ex-Im Bank’s export credit insurance to cover non-payment by foreign buyers who have open accounts. The insurance is available for a modest premium that varies by country and number of buyers.  
   Banks will typically not include foreign accounts receivable in their calculation of income a company can borrow against, but if those account receivables are insured banks can then assign the policy to the loan and lend out money based on them, Filchock said.
   The Ex-Im Bank also offers buyer financing for long-term loans, with a down payment of 15 percent. Loans above $10 million have to get approval from the bank’s board.
   One of the unique characteristics about the National Export Initiative is the high priority given to interagency coordination, which has often been lacking in the past and made it difficult for companies to take advantage of the full array of available government services.
   The SBA, Johns said, focuses on recruiting and training companies that are new to exporting and hands off to Commerce Department experienced exporters who are ready to export to another country. It also has personnel co-located with the Commercial Service in 20 U.S. Export Assistance Centers.
   Several conference participants said prospects for domestic manufacturing are promising because the “Made in the USA” brand represents quality and is still sought after in many parts of the world.
   Overseas buyers, particularly in Europe, are interested in U.S. garment makers that can make environmentally friendly products using materials such as organic dyes and cotton, William Houck, an international trade finance specialist at the SBA, said after the event.