By Kristina Russo
One of the SBA’s goals is to support global expansion for U.S. small businesses. To that end, it offers many resources and financing programs to help them break through import-export trade barriers to access international trade business opportunities.
The SBA partners with several agencies to provide export business assistance for small businesses. Located throughout the U.S., these centers primarily focus on educating and supporting business owners in the nuances of import-export trade and specific markets.
U.S. Export Assistance Centers (USEACs): USEACs provide SMEs with hands-on export business support. Staffed by professionals from the SBA, the U.S. Department of Commerce, the U.S. Export-Import Bank, and other public and private organizations, USEAC specialists in over 100 locations help identify opportunities in the best markets for their clients’ products, assist in developing market-entry strategies, advise on distribution channels and pricing, and find relevant trade shows.2 In addition, USEAC specialists can help SME owners identify and pursue federal, state, local, and private-sector financing.
Small Business Development Centers (SBDCs): SBDCs provide free individual business counseling, technical assistance, and low-cost business workshops about international trade business opportunities in over 1,100 locations across the country. These services, which represent the efforts of the SBA, a college or university, the private sector, and state and local governments, tend to be tailored to local economic needs.3
SBA Office of International Trade: The mission of the Office of International Trade is to “enhance the ability of small businesses to compete in the global marketplace.”4 It directs and coordinates the SBA’s export initiatives, working together with other public- and private-sector groups to break through international trade barriers. The office also publicizes the small business benefits of U.S. trade agreements and advocates for small businesses under those agreements.
STEP program, funded by the SBA, provides financial grants to state governments to help SMEs understand export business opportunities, participate in foreign trade missions/shows, obtain services to support foreign market entry, develop/translate/optimize websites to attract foreign buyers, and design international marketing products.5 Since the inception of the grant program in 2011, STEP has awarded approximately $138 million in grants.6 STEP funding is managed through state governments, with 47 states and U.S. territories receiving $18 million in funding during 2018. The largest amounts went to Washington, California, Texas, New York, New Jersey, Illinois, North Carolina, and Michigan.
The SBA guarantees export loans to support small business international trade. Like other SBA loans, export loans work in conjunction with a participating lender; however, SBA export loans guarantee up to 90 percent of the loans, whereas other SBA loan guarantees range between 50 to 75 percent of the loan amount.7
To qualify for an SBA Export Loan, a business must meet the SBA’s definition of a small business which varies by industry: in general, having a tangible net worth of $15 million or less and net income after taxes for the last two years of $5 million or less.8 The process begins with an SBA credit officer at a USEAC who can suggest participating lenders using the SBA’s Lender Match tool. The SBA loan guarantee process is faster than the lender’s loan approval process, which typically takes a few months.
SBA export financing programs have several pros and cons. Most notably, an SBA guarantee increases the likelihood of loan approval and helps secure competitive interest rates. Additionally, the various programs provide flexibility for different business needs. The most noted cons, however, are the strict eligibility requirements and long application process, as the lender’s process doesn’t usually start until after the SBA finishes and offers its guarantee. SMEs also need to pledge different types of collateral, pay various processing fees, and, for those who own at least 20% of the business, provide a personal guarantee.9,10
Small businesses have three types of loans they might qualify for:
Export Express Loan: The SBA Export Express Loan is the simplest, most flexible export loan and offers the broadest range of uses, such as market development, acquisition of fixed assets, and even refinancing of other export loans. This loan can be structured as either a line of credit or term loan, and it maxes out at $500,000.11 The defining feature of this program is the speed of processing—the SBA offers its guarantee as quickly as 36 hours if certain requirements are met. The SBA guarantee is substantial, with 90 percent for loans under $350,000 and 50 percent for loans up to $500,000.12
To qualify for the SBA Export Express Loan program, SMEs must meet several requirements:
Participating lenders apply their own collateral and underwriting standards to these loans and are encouraged to fund the loans quickly.
Export Working Capital Loan: Export Working Capital Loans support SME international trade by providing working capital financing in order to fulfill export orders. Typically structured as a line of credit of up to $5 million, these loans are used to pay suppliers, finance production, or buy inventory to fulfill export sales.14 They also help SMEs handle long customer payment cycles, an especially common barrier to entry in many underdeveloped markets.15
The SBA guarantee is up to 90 percent of the $5 million loan cap and is subject to all of the same eligibility requirements as the Express Loan program. Processing time for this loan guarantee is usually up to 10 business days.16
International Trade Loan: The purpose of the SBA International Trade Loan program is to assist SMEs in entering or expanding the small-scale export business or in strategically investing to compete with other exporters that are adversely impacting their business. This program offers various combinations of financing for fixed asset acquisition, working capital, or debt refinancing involved in small business international trade, up to $5 million.17 The loan structure correlates with the use of the proceeds, with repayment terms up to 10 years for leasehold improvements and equipment and up to 25 years for real estate.18
The SBA guarantee is up to 90 percent of the $5 million cap and is subject to all the same eligibility requirements of the other programs. International Trade Loans are secured by a small business’ equipment, real estate, and need to be personally guaranteed by the owner(s).19
Small businesses have a huge opportunity to participate in international trade, but overcoming the barriers to entry requires assistance. With that in mind, the SBA has developed a number of programs and loans to help small businesses expand globally and effectively compete in the international marketplace. Bigger picture, small business success in import-export trade can lead to greater growth in the overall U.S. economy.
Kristina Russo is a CPA and MBA with over 20 years of business experience in firms of all sizes and across several industries, including media and publishing, entertainment, retail and manufacturing.
1. “SBA: Only 1 Percent of America’s Small Businesses Export Overseas,” Inc.; https://www.inc.com/associated-press/linda-mcmahon-small-business-administration-exports-only-1-percent-small-business.html
2. “U.S. Export Assistance Centers,” SBA; https://www.sba.gov/managing-business/exporting/us-export-assistance-centers%20
3. “Small Business Development Centers,” Entrepreneur; https://www.entrepreneur.com/encyclopedia/small-business-development-centers
4. “Office of International Trade,” SBA; https://www.sba.gov/offices/headquarters/oit
5. “Export Products,” SBA; https://www.sba.gov/business-guide/grow-your-business/export-products
6. “SBA Announces FY2018 State Trade Expansion (STEP) Awards,” Cision PR Newswire; https://www.prnewswire.com/news-releases/sba-announces-fy-2018-state-trade-expansion-program-step-awards-300715647.html
7. “SBA Export Loans: 3 SBA Programs to Know About,” Valuepenguin; https://www.valuepenguin.com/small-business/sba-export-loans
8. “How to Apply for an SBA Export Loan,” FORAFinancial; https://www.forafinancial.com/blog/working-capital/guide-applying-sba-export-loan/
9. “The Pros and Cons of SBA Export Loans,” FORAFinancial; https://www.forafinancial.com/blog/working-capital/pros-cons-sba-export-loans/
10. “SBA Export Loans: 3 SBA Programs to Know About,” Valuepenguin; https://www.valuepenguin.com/small-business/sba-export-loans
12. “How to Apply for an SBA Export Loan,” FORAFinancial; https://www.forafinancial.com/blog/working-capital/guide-applying-sba-export-loan/
13. “SBA Export Loans: 3 SBA Programs to Know About,” Valuepenguin; https://www.valuepenguin.com/small-business/sba-export-loans
14. “How to Apply for an SBA Export Loan,” FORAFinancial; https://www.forafinancial.com/blog/working-capital/guide-applying-sba-export-loan/
15. “SBA Export Loans: 3 SBA Programs to Know About,” Valuepenguin; https://www.valuepenguin.com/small-business/sba-export-loans
16. “Export Products,” SBA; https://www.sba.gov/business-guide/grow-your-business/export-products
18. “SBA Export Loans: 3 SBA Programs to Know About,” Valuepenguin; https://www.valuepenguin.com/small-business/sba-export-loans