FEDERAL GUARANTEE PROGRAMSTHAT SUPPORT EXPORT LENDING TO SMALL BUSINESS

Community Affairs Webinar Series

Opportunities for Community Banks:

YOUR PRESENTERS:Dennis R. ChrisbaumDirector, International Trade Finance, SBA Michael JacksonDirector, City/State Partners, Ex-Im Bank Teri RyanBranch Chief, Risk and Asset Management, USDA Foreign Agricultural Service Stephen FancherPresident and CEO, Florida Export Finance Corporation James MoschellaExamination Specialist, FDIC

“Because the more products we make and sell to other countries, the more jobs we support right here in America… Tonight we set a new goal: We will double our exports over the next five years, an increase that will support two million jobs in America. To help meet this goal, we're launching a National Export Initiative that will help farmers and small businesses increase their exports…”

President Barack Obama State of the Union Address

January 27, 2010

National Export Initiative

National Export Initiative

Announced March 11, 2010 by PresidentGoal

1. Double exports in five years2. Create two million new jobs

Actions1.Create Export Promotion Cabinet2.Increase technical assistance3.Increase export financing4.Increase business advocacy5.Strengthen trade agreements

The Export Promotion Cabinet, July 2012

To Maximize the Effectiveness of Federal Programs, the Federal Government will:

(1) increase the national base of small- and medium-sized enterprise exporters by 50,000 by 2017,

(2) expand the reach of federal export assistance—including trade financing--and counseling to small businesses, and

(3) ensure better delivery of export promotion services domestically and overseas.

U.S. Global Business Solutions

Export Promotion Cabinet, Objective #2: Expand Access to Small Business Trade Financing 1) trade financing perceived as too complex by

many lenders 2) not high volume nor profitable for lenders

1) reduce the complexity and present a

streamlined package of financing options, 2) focus only on mainstream products with greater

volume potential

Problem

Solution

Separating Facts from MythsMyth

“Small businesses don’t export.”Fact

• 296,000 SMEs (98% of all exporters) exported more than $700 billion in 2011, representing 33.3% of all known U.S. exports.

• Very small companies (fewer than 20 employees) account for 70 percent of all exporting firms.

• Find out how important exporting is to your state: http://www.trade.gov/mas/ian/statereports/.

Perception vs. Reality

Lender Perception “Lending to exporters is too risky”

RealityOut of all of the SBA Sub-program codes, the Export Working Capital program has the lowest loss rate and the lowest default rate.

Perception vs. RealityLender Perception

“We can’t use SBA export loan programs, since our bank doesn’t have an international department.”

Reality• An international department isn’t necessary. • The SBA/Ex-Im Bank USEAC Regional Managers will

work with any bank to walk them through the process.

• SBA loans are made to your customer down the street, not to a foreign entity in Mexico, China, or elsewhere.

One-Stop Shop for Export Business NeedsGoals of Export Promotion Cabinet• Grow revenues and jobs through exports and the number of

SB exporters—add 50,000 by Dec. 2017• Expand the base of financial institutions and service

providers who facilitate exports—add 250 trade financing originators by Dec. 2015

Solution to Increase Access to Trade Finance• Reduce complexity by packaging trade financing and

marketing options that seamlessly meet exporter needs• Simplify marketing materials and increase outreach and

training to meet the needs of their financial institutions• Streamline access to international experts, credit products,

and business services for exporters and lenders—build volume

One-Stop Shop for Export Business NeedsStrategy• Tailor the options to the stage of exporter development

and capacity of the financial institution

• Combine key trade and commercial finance products and services in a single menu of options made for mainstream use: U.S. Global Business Solutions

• Offer a seamless, low-cost transition among options

• Provide a menu of customized financing solutions for more advanced exporter needs: The Specialized Global Solutions (SGS) program

What Might a SME Need?

Working Capital for Export Development:

• Attend trade shows

• Secure CE mark, international patent or trademark

• Meet potential business partners

• Vet potential buyers, agents or distributors and purchase foreign credit reports

• In-country promotions

• Translation of website/product literature and other marketing costs

Solution: SBA Export ExpressProfile:• to $350,000 with 90% guaranty• $500,000 with 75% guaranty • Processed by SBA-approved Export Express lenders• Working capital: 7 years; Fix assets: up to 25 years

Required: •Entering or expanding in foreign market• In business for at least 12 months (can be waived by

lender if the applicant’s key personnel have export expertise and successful business experience and lender does conventional underwriting, not relying on credit scoring)

Solution: SBA Export Express

Proceeds may be used for any “export development activity,” such as:• Translation of product literature or website• Participation in a trade show or on a trade mission• transaction-specific financing of export deals,

including standby letters of credit• general lines of credit for export purposes• term loans for permanent working capital, machinery,

equipment, or real estate used in the production of goods or services for export

What Might a SME Exporter Need?

Working Capital and Credit Insurance for Export Orders:

• Inventory, materials, labor, other production costs

• Foreign accounts receivable insurance

• Insurance and freight costs

• Bank fees related to the transactions

• Standby-letters of credit to guarantee bid, performance, or advance payments

Working Capital for Export Transactions 1. SBA Export Express—to $500,000• Guaranteed loan; 7 years maximum working capital2. Ex-Im Bank’s Global Credit Express—to $500.000• Direct loan, if credit is not elsewhere available• Provides businesses with export history or orders

with short-term, working capital • Terms: either 6 or 12-month revolving line of credit • Line can support general expenses of exporting,

including export development and transactional costs.

• Credit scored

Working Capital for Export Transactions3. SBA Export Working Capital—to $5 million•90% guaranty; $4.5 million guaranty•Maximum term, 3 years; typically, 1 year•Guaranty fee if 12 months or less: .25% (1/4 of 1%)

Transaction-Based Financing (Purchase order financing)•Single Order or Revolving Line •Most supplier and production costs through collections

Or, Asset-Based Line-of-Credit• W/C for pre-shipment, post-shipment or both• Borrowing Base: inventory, WIP, (insured) A/RAdvance rates: • up to 75% against inventory and WIP• up to 90% against foreign accounts receivable

Working Capital for Export Transactions

4. SBA Working Capital CapLine• Up to $5 million loans with 75% guaranty• Maximum term: 10 years• Benefit: One line to support both domestic and

international sales• Required: credit insurance on foreign A/R• One-to-one collateral ratio:– Advance rates up to 50% against inventory and

equipment;– 80% against A/R and real estate

Mitigate Transactional, Non-Payment RiskSolution: Ex-Im Bank’s Trade Credit Insurance • Up to 95% coverage against non-payment due to commercial

and political risk• Express Insurance: 5 day turn-around, up to 20 buyers• Insure world-wide buyers or single buyer—policy optionsBenefits:• Marketing—bigger orders• Financing—can add to borrowing base• Reduced complexity—no need for letters of credit• Health—sleep at nightCost:• ~65 cents per $100 invoiced amount• 25% discount paired with any SBA or Ex-Im Bank loan

What Might an Experienced SME Exporter Need?

Term Loan for fixed assets:

• Machinery or equipment to expand production in order to meet foreign demand

• Retooling expenses necessary for metric production or to meet other standards

• Permanent working capital

• Real estate needed as a result of expanding export sales

Solution: SBA International Trade LoanSummary:• A 7(a) loan up to $5,000,000 for plant and equipment• maximum guaranty: 90% up to $4.5 million• either: a) expanding because of exports, or

b) adversely impacted by imports and c) will improve company’s competitive position

• a combination of fixed assets or term loan with W/C -- maximum Working Capital guaranty: $4,000,000

• maximum term: 25 years; 10 years for working capital• refinancing is allowed• can be process by PLP lenders• can be used for “on-shoring” if conditions above met• business plan required--application must document eligibility

requirements (i.e. export projections or evidence of adverse impact by imports)

All Four SBA Loans Can Be Used to Support Indirect Exports

• Applicants who produce products or services that enter into the export channel, but do not directly export their products– Manufacturers using an Export Trading Company– Suppliers to other domestic manufacturers that

export directly• Requires certification from domestic customer that

goods are, in fact, being exported.

What Else Might an Experienced SME Exporter Need?

Term Loan for the Foreign Buyer:

• Ex-Im Bank’s Medium Term loan guarantee to a lender that finances a foreign buyer’s purchases of U.S – made capital equipment and any related services.

• BENEFITS: Enables an exporter to sell large ticket capital equipment to a foreign buyer on favorable credit terms generally between 1 and 5 years and be cashed-out up front by a lender

• ELIGIBILITY: Products must be of U.S. origin. Buyer must make a minimum 15% cash down-payment.

• COST/FEES/TERMS: A variable exposure fee is based on the risk of the transaction and a commitment fee of 0.125%. The interest rate is negotiated between the lender and the foreign borrower.

• RESTRICTIONS: Lenders must have a Master Guarantee Agreement in place to participate.

What Else Might an Experienced SME Exporter Need?Working Capital Over $5 million:

• DESCRIPTION: To purchase finished goods, raw materials, labor and fund overhead costs to fulfill export sales orders or to post a bid or performance bond. Guarantee 90% of the loan amount.

• BENEFITS: Offers generous advance rates (up to 75% on inventory and work-in-process, and up to 90% on foreign A/R).

• HOW IT WORKS: Lender either approves under their own “delegated authority” or sends to Ex-Im for concurrence. Loans may be revolving lines of credit or transaction-specific.

• ELIGIBILITY: Company must be in business for at least one year with financial statements available on its operations. Goods and /or services exported must be of U.S. origin.

• COST/FEES/TERMS: $100 processing fee. 1.75% annually, 1.25% available on a case-by-case basis for lower-risk transactions. Interest rate on the loan and any other fees are set by the lender.

USG Programs for Your Export CustomersA. Export Development --SBA Export Express—to $500,000B. Working Capital

--SBA Export Express—to $500,000--SBA’s Export Working Capital—to $5 million--SBA’s CapLine—to $5 million--Ex-Im Bank’s Global Credit Express—to $500,000--Ex-Im Bank’s Working Capital—over $5 million

C. A/R Payment Risk Mitigation --Ex-Im Bank’s Trade Credit Insurance programsD. Foreign Buyer Financing --Ex-Im Bank’s Medium Term Loan Program

Please USE Them!

Regional Export Finance CentersMidwest Western Chicago Regional Export Finance Center Orange County, CA Regional Export Finance Michael Howard: 312-353-8081 David Josephson: 949-660-1341

Detroit San Francisco Field OfficeJohn Toles: 313-309-4158 James Lucchesi: 415-705-2285

Minneapolis SeattleDenis Griffin: 612-348-1213 John Brislin: 206-728-2264

Northeast and Mid-Atlantic New York Regional Export Finance CenterThomas Cummings: 212-809-2650

Southeast Southwest Miami Regional Export Finance Center Houston Regional Export Finance CenterSharyn Koenig: 305- 526-7436 Patrick Crilley: 281- 721-0465

Atlanta North Texas Branch McKinney (Dallas), TXSusan Kintanar: 404- 897-6082 Kelly Kemp: 214-551-4959

Ex-Im Bank Field Offices

SBA’s Network of Trade Finance Specialists at U.S. Export Assistance CentersCHARLOTTE

Territory: North Carolina, South Carolina, Eastern TennesseeDan Holt 704-333-4886 x226 CHICAGOTerritory: Wisconsin, Illinois, IowaJohn Nevell 312-353-8065 CLEVELANDTerritory: Ohio, Western New York, Western Pennsylvania, Patrick Hayes 216-522-4731 DALLAS/FORT WORTHTerritory: Texas, OklahomaRick Schulze 817-684-5506 DENVERTerritory: Colorado, New Mexico, Utah, WyomingBryson Patterson 303-844-6623 ext.218 DETROITTerritory: Michigan, IndianaJohn O'Gara 313-872-6793 MIAMITerritory: Florida , Puerto Rico, Virgin IslandsMary Hernandez 305-526-7425 ext. 21 

ATLANTA Territory: Georgia, Alabama, Kentucky, West/Central TennesseeSandro Murtas 404-815-1496 ARLINGTON, VATerritory: Virginia, Maryland, District of Columbia, West Virginia, DelawareWilliam Houck 202-557.4063 BOSTONTerritory: Maine, Vermont, New Hampshire, Massachusetts, Connecticut, Rhode IslandJohn Joyce 617-565-4305 CALIFORNIA IRVINE Territory: Southern California, Southern Nevada, Arizona Martin Selander 949.660-8935

SACRAMENTO Territory: Northern California - Fresno to the Oregon border, Northern Nevada, Hawaii, Guam Jerry R. Avila 916-735-1708

MINNEAPOLISTerritory: Minnesota, North Dakota, South DakotaCarlos Sosa 612-348-1642 NEW ORLEANSTerritory: Louisiana, Arkansas, Mississippi Pellson Lau 504-589-6730 NEW YORK CITYTerritory: New York City & 5 Boroughs, Eastern Upstate New York, New JerseyToni Corsini 212-809-2645 PHILADELPHIATerritory: Eastern PennsylvaniaRobert Elsas 215-597-6110 PORTLANDTerritory: Oregon, Southern Idaho, MontanaJeff Deiss 503-326-5498  SEATTLETerritory: Washington, Alaska, Northern IdahoPru Balatero 206-553-0051 ext.228 ST. LOUISTerritory: Kansas, Missouri, NebraskaJohn Blum 1314-260-3788

Questions

Primary Contacts:

Dennis R. Chrisbaum, SBADennis.Chrisbaum@sba.gov; 202.205.6885

Michael Jackson, Ex-Im BankMichael.Jackson@exim.gov; 202.565.3479

FOREIGN AGRICULTURAL SERVICEUnited States Department of Agriculture

EXPORT CREDITGUARANTEE PROGRAM

GSM-102

FACILITATINGTRADE

FINANCE

WHAT IS GSM-102?

GSM-102

• It’s not a loan…

• It’s not a grant…

• It’s a guarantee

Backed by the full faith and credit

of the United States Government

PURPOSE OF THE PROGRAM

Promotes the export of U.S. agricultural products by facilitating the financing component via a

credit guarantee.

USDA guarantees the letter of credit to emerging markets where sales may not occur without the

financing and guarantee.

GSM-102

PROGRAMDESCRIPTION

Objective

• Protects U.S. exporters or U.S. banks against the non-payment of the importer’s foreign bank under a Letter of Credit (L/C)

Terms

• Guarantees up to 98% of the loan principal

• Covers a portion of the interest• Fees are based on country risk and

length of financing• Fees dependent on frequency of

principal repayments

Coverage

• Coverage up to 2 years• Over 190 agricultural products• Freight costs are usually covered• Over 140 banks covered in almost 80

countries

GSM-102

PROGRAMPARTICIPATION

• Approved Countries/Regions• Approved Foreign Banks• Qualified U.S. Exporters• Approved U.S. Banks• Importers do not need to be approved

GSM-102

•Not just for bulk commodities• High-value processed products are also covered

•Not just for large corporations• Approximately 47% of participants are SME’s

•Not just for large dollar transactions•Transaction sizes have no minimum. Many are under $1 million USD

GSM-102 is…

MISCONCEPTIONS

GSM-102

Consumer-ready - Intermediate - Bulk

ELIGIBLE COMMODITES

100% produced in USA High-Value products (90% U.S. Content)

GSM-102

HOW MUCH IS THIS GOING TO

COST?Guarantee fee(fully

transparent)

Cost of L/C

Financing costs

GSM-102

Carry 100% Risk

COMPARISONGSM-102

WITHOUT GSM-102 WITH GSM-102U.S. exporter reluctant to

ship without being paidin advance

Bank in region may beunwilling to provide credit to importer

Any financing to importermay have very short repayment terms & higher interest rates

U.S. exporter more likely to ship since USDA carries 98% of the risk and payment is received upon presentation of documents

Presence of loan term extended by the U.S. bank to the foreign bank may encourage extension of credit by the foreign bank to the importer

Importer now in better position to negotiate favorable loan terms with GSM-approved bank in the region

Carry 2% Risk

Foreign Bank

Less risk – USDA assumes almost all risk in the event of nonpayment

Ability to leverage country & foreign bank limits

Reduce capital requirements due to USDA guarantee

Ability to lend at reduced rates because of USDA guarantee

Ability to lend up to 2 years

BENEFITS TO U.S. BANKS

Establish or improve correspondent banking relationships

Service U.S. exporter clients & expand relationships

GSM-102

BENEFITS TO AN EXPORTER

Open new markets and expand sales where risk may be greater

Minimal cost – fees average about 1 percent Reduce importer and foreign bank risk

Get paid quickly by assigning guarantee to U.S. bank and delivering shipping documents that conform with L/C

Ability to lower all-in-costs to the buyer

GSM-102

40

HOW TO GET STARTED?

Provide most recent audited financial

statementsDocumentation from

federal or state agency regulator

Identify shareholder ownership & management

Contact information of principal and U.S.

regulator

U.S. Bank

GSM-102

41

HOW TO GET STARTED?

ExporterGet a DUNS number

Submit qualification application

Negotiate sales contract with buyer

Submit request for guarantee/pay guarantee

fee

Contact U.S. bank (if assigning guarantee)

GSM-102

Africa & Middle East

Central AmericaCaribbean

Central Asia

MexicoChina

RussiaSouth America

South Korea

Southeast Asia

VietnamTurkey

MARKETSGSM-102

2007 2008 2009 2010 2011 2012Claims Registrations

.26% 4.23%5.23%.49%

$5.32 billion

$1.44 billion

$3.09 billion

$4.12 billion $4.13 billion

$3.11 billion

REGISTRATIONS (USD BILLIONS)GSM-

102

GLOBAL USAGEFY 2011 – 2012 (in USD

millions)

+Eurasia Region discontinued in 2012

AME

Caribb

ean

Centra

l Am.

China /

HK

*Euras

ia/Russ

ia

S. Ko

reaMex

ico

South

Am.

SE Asia

Turke

y0

200

400

600

800

1000

1200

20112012

$ US

D M

illion

s

GSM-102

Soybeans26%

Yellow Corn20%Wheat

18%

Soybean Meal11%

Cotton6%

Rice3%

Breeding Cattle3%

Beef2%

Other11%

Chart Title

TOP COMMODITIES

FY 2012

GSM-102

FY 2013 PROGRAMMING

Country/Region ($5.5 Billion per Farm Bill)Africa/Middle East Region $ 400 MillionCaribbean Region $ 300 MillionCentral America Region $ 550 MillionCentral Asia Region $ 50 MillionChina Region $ 200 MillionKorea, South $1,000 MillionMexico $ 400 MillionRussia $ 250 MillionSouth America Region $ 600 MillionSoutheast Asia Region $ 450 MillionTurkey $ 700 MillionVietnam $ 100 MillionReserve $ 500 MillionTOTAL: $5.5 Billion

GSM-102

FOREIGN AGRICULTURAL SERVICEUnited States Department of Agriculture

ADDITIONAL INFORMATION

Teri Ryan202.720.0663

teri.ryan@fas.usda.gov

www.fas.usda.gov/excredits/ecgp.asp

See how your business can benefit from GSM-102

Contact Us

Florida Export Finance Corporation FEFC

A not for profit corporation created and funded by the State of Florida

by the Florida Export Finance Corporation Act of 1993-

FL. Statutes 288.770-288.779.

Legislative mandate to increase job opportunities and income for residents of Florida by providing financial, technical and consulting assistance to small and medium sized Florida Companies in support of their export sales.

FEFC financial assistance is available only for exporters and transactions which meet the following requirements:

 The exporter/borrower must be registered to do business in Florida and be able to produce a current corporation, partnership or proprietorship registration.

  The exporter/borrower must have less than 250 employees. Full and part

time employees are included in this requirement.  The exporter/borrower must have less than $6,000,000 of net worth.  The equity owner of the exporter/borrower must sign the FEFC

application, all loan documents, and personally guarantee the loan.

The exporter/borrower must have a specific and verified order from a foreign buyer and the loan must be made to support the order.

The goods or services must be shipped from Florida.

The maximum FEFC guarantee amount is 90% of the loan or $500,000, which ever is the lowest.

The maximum term for guarantee is one year.

FEFC will not offer financial assistance to companies that qualify for the Ex-Im Bank or the SBA Working Capital Loan Guarantee programs. Most likely reason for non-qualification for these

federal government programs is lack of collateral, short time in business, lack of profitability, or poor financial conditions.

FEFC will issue a guarantee for 90% of a working capital loan made by a lender to an approved exporter up to a maximum liability to FEFC of $500,000. The guarantee is subject to certain conditions which the lender must adhere to.

The most important are as follows:1. The loan must be revolving.2. Loan advances are not given to

the borrower, only to a supplier and in payment of items required in order for the borrower to fill a qualified foreign order.

3. In some cases the borrower (sometimes the lender) must obtain trade credit insurance covering nonpayment by the foreign buyer. FEFC will help in obtaining such insurance.

4. All payment from the foreign buyer must be sent directly to the lender.IM

PORT

ANT

FEFC

The FEFC Guarantee may prevent a small

business loan from being “Classified” by the bank

regulators.

Medium term (over 1yr.) loans commitments arranged on behalf of small Florida exporters$1,797,665,000

  Export value of Political and Credit Risk Insurance arranged to support sales of small Florida

exporters $ 248,800,000  Export value covered by FEFC loan guarantee commitments for small Florida exporters $

393,731,000

Total value assisted (100% small business/approx. 72% minority and women owned)$2,440,196,000

Total for 2012 activities $ 48,970,000

Total Grants received (1993/2012) $12,590,000 Capital - $1,000,000 Operating Expenses $ 13,590,000

Net Worth of FEFC - 12/31/12 $ 9,578,658 Total number of seminars - 382 FEFC seminar attendance - Exporters 13,074 - Bankers 2,498  FEFC Status - Non stock not for profit corporation with IRS 501(c)3 status

13 Member Board of Directors (3 Government/10 Private Sector) Loan Defaults – 25 ($3,710,991 Net Loss) Legislative Mandate - To increase job opportunities and income for residents of Florida by providing

financial, technical, and consulting assistance to small and medium sized Florida companies in support of their export sales.

5.3

70,0003,850

Filename59

Regulatory Perspectives

Filename60

Regulatory Benefits

Portion of the loan guaranteed could receive a preferential capital risk weight under Part 325 of the FDIC

Rules and Regulations.

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Risk Issues

Have the right people, policies, and procedures in place before entering

a new business line.

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Risk Issues

Fully understand the guarantying agency’s requirements for

underwriting, servicing, and liquidation processes.

Filename63

Risk Issues

Know your customer from the Credit Risk, Anti-Money Laundering, and Office of Foreign Assets Control

(OFAC) perspectives.

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Risk Issues

Execute proper due diligence prior to entering into any third-party vendor

relationship.

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Reference Material

Supervisory Insights, June 2011 - SBA Lending: Insights for Lenders and Examiners

http://www.fdic.gov/regulations/examinations/supervisory/insights/sisum11/examiners.html

Small Business Lending Initiativeshttp://www.fdic.gov/consumers/banking/businesslending/index.html

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Reference MaterialFIL-44-2008 - Guidance for Managing Third Party

Riskhttp://www.fdic.gov/news/news/financial/2008/fil08044.html

Bank Secrecy Act Guidance http://www.fdic.gov/regulations/examinations/bsa/index.html

Jim Moschella, Examination Specialist jmoschella@fdic.gov

917-320-2542

FOR FURTHER INFORMATION:

Email us at:CommunityAffairs@FDIC.gov Check back with our website:www.fdic.gov• An archived version of this presentation• Links to agency websites• Additional resources