5 Export Strategies for COVID-19 Times from SBA’s Office of International Trade
The Coronavirus pandemic continues to impact the global economy. The World Trade Organization predicts it could cause global trade to shrink by 13-32%. Already small business exporters are experiencing reduced orders and delayed payments.
The key challenge for small business exporters is to weather the immediate storm and position themselves for greater exporting as the recovery occurs. SBA export loan guarantees offer tools which can allow commercial lenders to partner with small businesses and do just that.
Here are five export strategies to help your small business clients during this challenging time and set the stage for their future export success.
SBA DEBT RELIEF … cushions existing SBA export borrowers; boosts new export financing
An important component of the Coronavirus Aid, Relief, and Economic Security (CARES) Act is the authorization of $17 billion of Debt Relief for SBA borrowers. It is provided without regard to whether a business also receives assistance under the Paycheck Protection Program (PPP) or Economic Injury Disaster Loan (EIDL) programs.
Offered to all borrowers, under both the 504 loan participation program and the 7(a) loan guarantee program, SBA Debt Relief:
- Applies to International Trade Loans, Export Express, and Export Working Capital Program loans.
- Pays the next six months of installments on loans from April 2020 to September 2020. (For those with an existing deferment of SBA payments, the six months begin after their deferment ends.)
- Continues debt service and pays down loan balances directly to the lender.
- Includes new SBA financing through September 27, 2020.
Borrowers can conserve their own working capital and redirect cash to weather the pandemic and invest in a recovery strategy.
Lenders benefit as well. With the first six months of installments covered by SBA, lenders can deploy financing (with 90% SBA guarantees) that won’t require businesses to bear the debt service cost until after pandemic’s effects have diminished.
BORROWING BASE FLEXIBILITY … accommodations for reasonable delays in export accounts receivable collection
SBA’s Export Working Capital Program (EWCP) offers 90% loan guarantees on short-term revolving lines of credit. Borrowers receive credit line advances based on foreign accounts receivable and export inventory.
Recent events have created delays in collecting foreign accounts receivables leaving lenders faced with the dilemma of allowing them to remain a part of the borrowing base. The EWCP allows inclusion of these delayed receivables where a valid explanation is provided. SBA’s nationwide network of Export Finance Managers are ready to work with lenders to consider such servicing actions.
90% LOAN GUARANTEES… to support exporter financing in uncertain times
Small business exporters face shrinking lines of credit or even outright denials as lenders maintain larger reserves in expectation of losses. SBA’s 90% export loan guarantees are ideal mitigators for perceived risk. The International Trade Loans, Export Express, and Export Working Capital Program constitute unparalleled support for lenders in supporting small businesses with export activities– whether the need is for revolving working capital, fixed asset term debt, export development costs, or debt restructuring.
Small businesses who provide to their customers as part of a global supply chain, i.e. indirect exporters, are also eligible to receive SBA’s 90% export guarantees. Lenders and businesses are encouraged to look beyond their immediate customers to see if they can document an indirect exporting channel that can therefore claim SBA’s highest loan guarantee.
EXPORT WORKING CAPITAL GUARANTEES … as a risk mitigation alternative when export credit insurance becomes less available
Export credit insurance is not always readily obtainable, or the price may be prohibitive; however, SBA’s export working capital guarantees can provide a risk mitigation option.
Export credit insurance is a commonly used tool for protecting foreign accounts receivables against nonpayment. If a foreign party fails to pay, the insured exporter simply files an insurance claim and the lender obtains an assignment on the insurance payments. Unfortunately, export credit insurance markets are beginning to tighten as the risk of timely payment rises during the pandemic.
SBA’s 90% export working capital guarantees – via the Export Express and Export Working Capital Program – don’t require letters of credit or export insurance backed sales. In fact, open account uninsured export sales are commonly financed through our programs. We encourage lenders and businesses to work together with their local SBA Export Finance Manager to craft an export financing solution.
EXPORT MARKET DIVERSIFICATION WITH STEP … broadening global outlets to find more buyers and spread risk
The best export strategy is diversification. SBA’s State Trade Expansion Program (STEP) is a grant program delivered through State trade offices that offsets some of the cost of developing new export market connections.
STEP can fund all sorts of export development activities. In non-pandemic times, trade shows and trade missions are commonly supported through STEP. But with the temporary lull in international travel, new virtual strategies to connect small businesses with global markets are being developed. Many States now offer STEP support for investments in e-commerce. Contact your State’s STEP Grant Program to see how they can assist your clients to broaden their international customer base with SBA-funded grants and programs.
With past economic disruptions, global trade has always been relatively quick to recover, often even in advance of any domestic market recovery. Thus, the key challenge for small business exporters in the near term is to weather the immediate storm and position themselves for greater exporting as the recovery occurs. SBA export loan guarantees offer tools to small business exporters which can allow them to partner with commercial lenders and do just that. Contact your local Export Finance Manager today.