Several small exporters publicly chastised the Export-Import Bank of the United States in 1994 for being insensitive to the needs and limitations of the smaller business. The Ex-Im Bank has indeed listened to these concerns, and has now taken several actions to be specifically helpful to the smaller exporter.
One step that has proven to be more than symbolic has been the designation of Director Maria Luisa M. Haley to be responsible for the Bank’s policies for the smaller business. A number of significant changes have sprung from this appointment..
Strategically, the tied-aid loan program has been reauthorized by the Congress and is now more accessible to the smaller business. Established in 1994, the tied-aid fund can neutralize the long-term low-rate financing the governments of industrial nations offer their exporters to win profitable contracts in developing countries. Faced with such a bidding inequity, an exporter can turn to the Ex-Im Bank to fund low-cost financing from its $264.4 million tied-aid "War Chest" thereby leveling the playing field for US exporters competing for rapidly-growing emerging markets..
For example, the first of this year, the Ex-Im Bank authorized three tied-aid loans to the US-China Industrial Exchange (Chindex) in Bethesda, Maryland -- a small exporter offering $8.4 million of medical diagnostic equipment from manufacturers throughout the United States to the Chinese Ministry of Public Health for use in hospitals all over the People’s Republic of China. It was this tied-aid financing that effectively disarmed aggressive government-backed foreign competition from an Austrian supplier thereby closing the sale for Chindex..
Smaller businesses will benefit from substantial improvements and greater flexibility made in the Working Capital Guarantee Program effective April 1, 1996. Smaller banks designated Level "B" lenders will now have delegated authority to lend up to $2.0 million per exporter, with a total limit per lender of $25.0 million. Loans up to $3.5 million per exporter can now be approved by Level "A" lenders who have a total limit of $50.0 million. And a new designation, Level "AA," will enable the largest banks to approve loans up to $5.0 million per exporter with their own lending limit raised to $75.0 million.
Easing the burden of total financing costs, the Ex-Im Bank will be sharing its facility fee (1.50 percent) with the delegated authority lender. The lender will now retain 1.25 percent and remit only 0.25 percent of the facility fee to the Bank for all loans up to $2.0 million. And the facility fee will be shared equally between the lender and the Ex-Im Bank for just that portion of larger loans exceeding $2.0 million.
Two changes are being implemented to enlarge the range of acceptable collateral for working capital guarantees. First, costs incurred by service companies in the fulfillment of export sales -- e.g., design, engineering, labor and overhead expenses connected with particular contracts -- can now be a part of the collateral base. Previously lacking traditional collateral -- viz. inventories -- this revision will facilitate working capital credits for service companies such as environmental consulting and architectural/ engineering firms.
And second, certain loan structuring requirements can now be "customized" on a case-by-case basis when accounts receivable are due and collectible through a smaller company’s offshore affiliates. Further, the collateral requirement for performance guarantees is being reduced from 50 percent to 25 percent.
Although it may have received a bad rap in the past, the Ex-Im Bank is clearly working innovatively to improve its accessibility to the smaller business. Guarantees for smaller businesses represented 78 percent of the transactions under the Working Capital Program in FY-1995. These authorizations had totaled $180 million in FY-1994, but this record soared to $306 million in FY-1995.
Credit insurance is increasingly important to the smaller exporters to protect them and their banks against foreign customer defaults. The Ex-Im Bank authorized a total of $1.57 billion of credit insurance to smaller companies in FY-1994, and this authorization rose to $1.67 billion in FY-1995.
The Ex-Im Bank is seeking further ways to meet the needs and expectations of the smaller business. Ms. Haley has recognized that more smaller US companies are engaged in exporting each year, and that these smaller exporters contribute substantially to job creation and entrepreneurial expansion within the United States.
Your comments and suggestions for these pages are most welcome!
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23 Dale Street
Revised: April 28, 1999 TAF
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