SBA ITL: a great opportunity for small businesses to position their products in foreign markets - Blog - Ki Solutions Financial Advisors

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SBA ITL: a great opportunity for small businesses to position their products in foreign markets

Published by in SBA Loans ·
Tags: Capital RaisingSBAInternational Trade LoanITLExportsForeign TradeFundingIndirect Exports

Arguably the best U.S. state for small businesses to export from, Florida is a place where many export-oriented businesses reap the benefits of a pro-business environment in a privileged geographic location. With technology transforming the playing field, small U.S. exporters can be very competitive in the global marketplace and they seem to improve their survival rates when exploring markets abroad - U.S. exporters are ~8.5% less likely to go out of business vs. non-exporters, according to research by the Institute for International Economics. Now, in an increasingly interconnected and complex global market, Florida exporters have witnessed the U.S. government pushing to grow U.S. companies and the economy through international sales. With so many growth opportunities to be explored, the gains could be immense so government agencies such as the Small Business Administration (SBA), as well as several programs such as the 2010 National Export Initiative, have supported small businesses interested in tapping foreign markets. The growth in number of small and midsized firms that export (about threefold over the past two decades) underscores the results of these efforts but there still seems to be room for growth since only 1% of them currently export.

In addition to supporting sales abroad, export loans guaranteed or provided directly by government agencies, such as the SBA and the EXIM Bank, are essential because they fill a funding gap that exporters typically deal with. This is because most banks do not advance cash based on working capital export receivables, orders or letters of credit. Through its partnership with national, regional, and community lenders, the SBA provides loan guarantees under three programs for uses related to enabling small businesses commence or expand export activity. These funds are employed in the form of export working capital or acquisition of plant and equipment. Originally introduced by the Omnibus Trade and Competitiveness Act of 1988 in response to growing concerns over an escalating volume of imports coming into the U.S. as well as a recognized need to expand small business exports, the International Trade Loan (ITL) is a term loan of up to US$5 MM for permanent working capital, equipment, facilities, land and buildings and debt refinance related to international trade. It is especially appealing to capital-intensive exporters and small businesses adversely affected by import competition, to whom the SBA gives special consideration. In an effort to boost small-business growth, the U.S. government's 2010 JOBS Act made it even more appealing by increasing the SBA guaranty to 90% of the loan. The ITL has many comparative advantages over EXIM Bank export loans and the popular SBA 7a loan, for example. Compared to EXIM bank financing, it is a better option to eligible borrowers because it: i.) allows funding of indirect export activities (this is especially appealing to participants of the Florida trade ecosystem); ii.) is more flexible (ex: doesn’t require any U.S. content to qualify vs. the EXIM’s typical requirement of 50% U.S. content); iii.) its simplicity makes it a quicker process; and, probably the most appealing feature, iv.) it offers a 90% guaranty compared to the EXIM's 75%. As for exporters applying for 7a loans, the ITL is a clear improvement if the business is eligible. Their conditions are the same in: i.) max loan amount; ii.) guaranty fees; and iii.) max interest rates. But the benefit of a 90% guarantee vs. the SBA's 75% is a major difference and there is also a potential lower interest rate by allowing lender and borrower negotiating it, which can be typically lower than that of a 7(a).

Exports can be a major opportunity for small-business growth and the SBA ITL is instrumental in positioning small-businesses interested in foreign markets or in repositioning exporters who have suffered from import competition. In Florida, there are many small business exporters as well as those selling to big exporters or to domestic export trading companies that could qualify. But the process requires that applicants submit an export business plan, including historical data, projections and a narrative rationale that contains enough information to reasonably support the likelihood of expanded export sales. We help our clients prepare convincing business plans that improve their chances of qualifying for SBA funding, helping them meet the specific eligibility requirements, and secure the funding that is critical for their business growth. We hasten our clients’ market-entry by working on qualifying for SBA funding, which can be time-consuming for small businesses with limited resources, while they focus on developing their market strategy. We also offer corporate finance advisory services that help them better evaluate and review their cross-border market-entry strategies, including the possibility of acqiuring strategic cross-border assets, which could be supported by a potential SBA ITL funding. Since we are familiar with business in Latin America, we are extremely helpful in advising our Florida clients on developing their export plans with Latin America.

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