Following a lengthy political battle, the Export-Import Bank of the United States failed to win reauthorization from Congress last year, forcing the Bank on July 1, 2015, to refrain from approving new authorizations or engaging in business development. It was somewhat shocking, considering that over the Bank’s 80-year history, it had been reauthorized 18 times with overwhelming bipartisan majorities.
The five-month-plus waiting period before the Bank was reauthorized in December (and extending its charter until September 2019) was an “ordeal,” conceded ExIm Bank Chairman Fred Hochberg in an interview with Reuters.
Lawmakers who spearheaded the move to prevent reauthorization of the Bank’s charter claimed the Bank was a source of “crony capitalism” and “corporate welfare.” Multinational firms like Boeing and GE were frequently cited as companies who benefited from the Bank’s export financing services.
Yet, Hochberg said that small businesses are equally important to the Bank and he is concentrating on repairing relationships to small businesses that lost trade insurance policies as a result of the failed reauthorization last year. Indeed, a new mandate specifies that small businesses must comprise 25 percent of the Bank’s annual loans, loan guarantees and trade insurance; up from the previous threshold of 20 percent.
“The target of 25 percent for small businesses is a tall order…because we have to give the confidence back to businesses that we’re really there for them,” Hochberg said in the interview.
Small importers face unique challenges
A recent survey from the Small Business Exporters Association (SBEA) reveals unique challenges faced by small exporters, including financial challenges that organizations like the ExIm Bank can address. The Bank highlighted the top seven exporting takeaways as follows:
Takeaway #1: Most small businesses export physical goods.
Question: What kind of merchandise or services have you sold to a customer outside the U.S.? The majority of survey respondents export only goods (59 percent) while only 15 percent export only services. This fits our understanding that many firms that deal in services struggle to find safe ways to export, while firms that export physical goods are often able to do so.
Takeaway #2: Exporting takes less time than you think.
Question: Approximately how much time did you have to spend up-front before engaging in exporting? Many firms assume that exporting is time-intensive and complicated. While this is true in some circumstances, not all experiences are the same. Nearly half of exporting respondents said they spend as little as a few weeks setting up their exporting deals.
Takeaway #3: There are numerous resources available to solve export related challenges.
Question: Who helps you overcome export related challenges? As a business owner, you often have to turn to the experience of others to get the job done. When it comes to export-related challenges, your exporting peers turn to a variety of places from freight forwarders, to government resources and customs brokers.
Takeaway #4: Receipt of payment in advance is far and above the preferred payment term.
Question: Which of the following methods of payment do you accept from foreign customers? Any business owner will tell you that getting paid up front is preferred, especially when it comes to overseas sales. When that’s not an option, the shorter you can keep open account terms extended, the better. That does not mean those are your best or only options. ExIm export trade credit insurance can broaden your options for how you extend open account terms by insuring your foreign receivables.
Takeaway #5: Even for firms that export, North America is seen as the greatest emerging market.
Question: What region of the world do you believe to be the greatest emerging market for your business in the next three years? Unsurprisingly, U.S. businesses think North America holds the best opportunities for growth. This is followed by Northern Asia, South America and the Western Europe following close behind.
Takeaway #6: For many firms, finding financing for export operations is no harder than domestic operations.
Question: Would you say securing financing for your firm’s exporting operations is more or less difficult than securing financing for traditional business operations? Many firms assume that exporting is time intensive and complicated, and finding the right financing options is a big part of that. However, 61 percent of respondents found that accessing export financing is about the same as domestic financing. While circumstances vary, many inexperienced exporters encounter more difficulty because they don’t know where to go to solve the problem at hand. However, more experienced exporters are more aware of and better able to leverage powerful resources such as U.S. Export Assistance Centers, trade credit insurance and working capital loan guarantees, turn to the right resource the first time and find things much easier.
Takeaway #7: Concern around getting paid is the biggest challenge when selling to foreign customers.
Question: What do you consider the largest challenges to selling your goods and/or services to foreign customers? Forty-four percent of exporting respondents cite “worrying about getting paid” as their biggest exporting challenge, which aligns with takeaway number four, which outlined the general preference of exporters to receive cash-in-advance. There are, of course, many reasons why this may be, but what we have come to realize at ExIm is that many firms who want full payment in advance and worry about getting paid, don’t know about the options to mitigate those concerns with trade credit insurance and working capital loan guarantees.
