Not that long ago, exporting to a market like China was a challenge for a small business. But thanks to a variety of factors — including technology such as the Internet — almost any business can export today.
Idaho businesses exported $5.1 billion in merchandise in 2014, according to data from the U.S. Department of Commerce, an increase of more than 75 percent in the past decade.
If you’re looking to enter the export arena, it’s important to consider several factors: How will I pay for start-up costs to begin exporting? How will I pay for raw materials and manufacturing costs? How will I get paid? Fortunately, we can help with answers to all of these questions.
Whether a company is new to export or a seasoned veteran, the U.S. Small Business Administration has programs that help banks finance exports. An SBA Export Express guaranteed loan — up to $500,000 — can be used for any export purpose, including market development, attending trade shows or trade missions, securing export licenses and building export inventory.
The SBA’s export working capital guaranteed loan program can help you finance your overseas accounts receivables or build inventory for overseas sales. An EWCP loan may be secured before finalizing an export sale or contract to ensure that financing is in place after the order is won.
The SBA also offers the International Trade Guarantee Loan program to help expand your business to meet growth in the export market. Funds can be used for acquisition, construction, renovation or expansion.
Funding from all SBA programs combined is limited to $5 million in the aggregate.
In situations where an SBA loan is not appropriate, Zions Bank can use its Ex-Im bank designated authority up to $3.5 million.
There are a number of methods by which to get paid on your international sales. Ideally, you would receive payment in advance from the buyer prior to shipment, but that typically does not happen, especially if you are competing against other suppliers.
Letters of credit can be an alternative payment term if cash in advance isn’t practical. Under the arrangement, your buyer’s bank will issue a letter of credit in your favor. Essentially, the bank is guaranteeing payment to you, the seller, on behalf of the buyer if all conditions of the letter of credit are met.
Your bank can help with this process in a number of ways. At Zions Bank, clients are counseled on structuring the letter of credit to get the most protection possible. The bank then steps in as a collection agent to help secure payment from the buyer’s bank. In some cases Zions will confirm the letter of credit, taking on the risk of repayment from the buyer’s bank.
Letters of credit can enhance your ability to obtain financing, as many banks will not lend against foreign receivables. Securing insurance against non-payment of foreign receivables is another way to mitigate risk.
Another key consideration when exporting is whether to price your product in U.S. dollars or local currency. Pricing in local currency will often make the transaction easier for your buyers, making you more competitive and, in some cases, actually increasing your margins. Hedging tools are also available to remove the foreign exchange risks.
Whether you are a beginner or a seasoned exporter, it’s important to draw on the vast resources available in Idaho. State and federal offices, trade organizations and universities can be a source for export assistance and are easily accessible. In addition to providing a full menu of international financing and payment services, Zions Bank’s local international banking team works closely with these entities to help clients achieve success with their international trade endeavors.
Gary DeGrange and Lee Gibbs are part of Zions Bank’s International Banking team. DeGrange, a more than 30-year industry veteran, helped establish the first international banking department in Idaho. Gibbs has more than 35 years of experience in banking and is a seasoned U.S. Small Business Administration export lender.
Credit products are subject to credit approval. Terms and conditions apply. See bank for details