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Key Terms Related to International Business - What is the Export-Import Bank?
Financing Business Expansion to Foreign Markets
Options for Small Business Owners to Expand Overseas
In 2013, the United States economy was sluggish at best. Large and small businesses alike struggled to make ends meet. It is likely that at least some would have liked to expand their operations, but could not find additional clients in their respective local markets.One reason for this problem could have been saturation of the industry; meaning too many other large and small businesses offering the same goods or services competing for the same pool of potential customers. One way to overcome this problem would be to expand the available pool of potential customers by reaching out into new territories such as foreign markets around the globe. But, where can an American small business owner learn how to expand their business into foreign markets? And, how can an American small business enterprise gain financing to export their goods overseas? One American agency dedicated to this purpose is the Export-Import Bank of the United States.
What is Export-Import Bank of the United States?
According to its official website, the Export-Import Bank of the United States (aka Ex-Im Bank) is an independent U.S. government agency that helps finance the foreign sales of goods and services produced by large and small U.S. business enterprises. The Ex-Im Bank was established in 1934 with the expressed purpose to create U.S. jobs through exports. Since its opening, the Ex-Im Bank doled out over $4 trillion to support exports and over 85% of its transactions went towards support of small business.
Interestingly, the Export-Import Bank does not support imports, even though the term "import" is included in its name.
Books on Export Business
The Mission of the Ex-Im Bank of the United States
The Export-Import Bank of the United States cites the following mission:
The EX-Im Bank exists to help large and small American businesses gain financing to expand their operations through the export of good and services to trade markets around the world.
The Ex-Im Bank of the U.S, poses to accomplish its mission by:
- Enabling large and small U.S. business enterprises to take advantage of opportunities to export their goods or services by converting those opportunities into real and sustainable sales that will set the stage for a stronger domestic economy with increased U.S. jobs
- Not competing with lenders in the private sector
- Providing financial products related to export financing that help fill gaps in international trade financing
- Making available "working capital guarantees (pre-export financing); export credit insurance; and loan guarantees and direct loans (buyer financing)."
- Working from an attitude whereby no transaction is too large or too small and over 80% of financing transactions directly benefit small business enterprises operating in the U.S.
How Does the Ex-Im Bank Help Small Business Enterprises?
Global Access for Small Business
During his first term, American President Barack Obama established the National Export Initiative. This initiative was crafted for the specific purpose to help American small business owners export their goods and services to foreign trade markets. As a result of President Obama's initiative, the Ex-Im Bank established a program called "Global Access for Small Business." This program became a top priority for the Ex-Im Bank as it elected to make a concerted effort to increase access for American small businesses to make their wares available to overseas trade markets. The overall purpose of Global Access for Small Business was to expand opportunities for growth of the U.S. economy that would help decrease unemployment. By expanding the pool of potential clients, the Global Access for Small Business program would help maintain and create U.S. jobs.The initiative was launched in January of 2011.
Goals for the Global Access Program
The Export-Import Bank established the following goals for its Global Access for Small Business program:
- Add a total of 5000 new small business to the Ex-Im Bank portfolio
- Double its annual small business volume to $9 billion
- Approve $30 billion in total business transactions
The target deadline to meet the goals for the Global Access program was set for the end of the 2014 fiscal year.
As of the May 1, 2013, the Ex-Im Bank reported the following progress towards meeting their stated goals:
- The U.S. chief export bank had added 2279 of the desired 5000 new small businesses to its portfolio
- As of the end of the Fiscal Year 2012, the Ex-Im Bank increased its annual small business volume from $4.5 to $7.5 billion
- The Ex-Im Bank had approved $19.5 billion of the $30 million goal in total small business transactions
What kind of finance products does the Ex-Im Bank offer to help support foreign market sales?
As mentioned above, the Export-Import Bank of the United States offers three types of financing. Their three primary products include:
- Working Capital Loan Guarantee
- Loan Guarantee
First, the Ex-Im Bank offers Export Credit Insurance. This type of financial product aides portential exporters in two ways. These insurance products (a) provides credit terms to foreign buyers and (b) U.S. exporters safeguards against loss in the case that the foreign trade partner defaults due to any number of potential scenarios. Coverage from the insurance policies includes protection against commerical and or political risks and span from one to seven years of sales.
The second type of export finance product offered by the Ex-Im Bank is loan guarantee. The U.S. Ex-Im Bank can offer loan guarantees to commercial lending institutions in situations when a foreign buyer wants to purchase U.S. goods but available in-country credit is too costly. In such cases, the Ex-Im Ban will cover the negotiated contract up to 85% of the principal and interest.
Working Capital Loan Guarantee
The third type of export financing made available by the Ex-Im Bank is what is known as Working Capital Loan Guarantee. This instrument allows a U.S. business to extend their credit limit when borrowing for the purpose of manufacturing products for the U.S. export market. In practice, the Ex-Im Bank augments a producer's ability to borrow against the value of their current assets by providing a 90% guarantee of principal and interest to other lenders who make funds available for working capital loans related to exports.
What are some requirement and restriction policies of the Ex-Im Bank Policies?
Requirements and restrictions related to Ex-Im Bank support include the following:
- Only those U.S. businesses that meet the definition of small business as determined by the Small Business Administration will be considered for Ex-Im small business products
- Potential Ex-Im clients must pay careful attention to the U.S. Limitation Schedule which delineates prohibitions and restrictions on available financing as related to export trade with pre-determined foreign export markets
- Potential U.S. exporters will be deemed eligible for Ex-Im finance instruments if their activities do not violate published requirements and restrictions
- Only those products that can show proof of exports containing 50% U.S. content will qualify for Ex-Im finance products
- Ex-Im products will only be offered to U.S. exporters for products being sent to previously apporved countries