Jul 15, 2014 - 4:15pm

When Ex-Im Is Required (Small Business Edition)

Fellow, International Policy

As the fight over the fate of U.S. Export-Import Bank (Ex-Im) continues, the rhetoric in Washington has grown heated. But across the nation, business owners are perplexed by the inside-the-beltway campaign against Ex-Im.

In particular, the thousands of small businesses that depend on Ex-Im to be able to access foreign markets are stunned at the threat that Washington could let the Bank’s charter lapse.

What the critics don’t grasp is that access to Ex-Im isn’t just something that’s nice for small exporters to have—it’s often indispensable.

Bridge to Life Solutions in Columbia, South Carolina, uses the most widely utilized Ex-Im product for small businesses: credit insurance. Bridge to Life insures orders for state-of-the-art cold storage organ transplant solutions. Thanks to Ex-Im credit insurance, Bridge to Life was able to begin exporting.

John Bruens, Chief Commercial and Business Development Officer for Bridge to Life, explains why Ex-Im is vital to his company: “Without Ex-Im, I would have to tell my customers, ‘prepay everything up front, or we can’t do business.’” By purchasing credit insurance from Ex-Im for the firm’s foreign receivables, Bridge to Life was able to extend credit terms to its international customers — and sales soared. “Ex-Im allowed us to build an international presence,” says Bruens.

Similarly, Eagle Labs in Rancho Cucamonga, California, uses Ex-Im’s credit insurance to insure orders for surgical equipment for cataract surgery.

Michael De Camp, Vice President of International Sales for Eagle Labs, explains that despite receiving consistent payment from foreign customers, local banks wouldn’t extend credit to Eagle Labs based on uninsured accounts. Once Eagle Labs secured Ex-Im credit insurance, everything changed. The firm got a line of credit from a private bank, bought the capital equipment it needed, doubled its sales, and doubled its workforce.

ProGauge Technologies in Bakersfield, California, makes machinery that injects steam into heavy oil wells to make it easier to pump. President Don Nelson lays out how he uses Ex-Im’s working capital guarantees: “The way our business works, we get money from our customers up front, and they get a bank guarantee from Wells Fargo.”

“In order to get a guarantee,” Nelson explains, “Wells Fargo requires us to get an Ex-Im guarantee and put up 10% collateral. Without Ex-Im, Wells Fargo would require us to put up 100% collateral, and we would have no money available for operations.”

The challenge is that U.S. commercial banks do not allow American companies to use foreign receivables or inventory as collateral. Far from crowding out the private sector, Ex-Im working capital guarantees let private banks extend loans and guarantees that they wouldn’t be able to make otherwise.

If Ex-Im shuts down, Nelson is worried about his company’s future. He says: “Our revenues would go down by about 75%, and I’d have to lay off between 50 and 60 people.”

Davenport Aviation in Columbus, Ohio, uses Ex-Im’s line of credit service. Davenport was founded in 2009 by João and Leah Simoes and got its start selling aircraft parts to African countries. The business boomed, and soon it was selling to Asia, South America, and the Middle East.

Simoes explains why Ex-Im is vital: “Cash lifecycles can be long — up to 120 days — when dealing with developing countries. Private banks just do not offer large enough line of credits to small companies like ours with large backorders.”

When determining the borrowing base for a line of a credit, U.S. commercial banks do not take into account foreign receivables. Without Ex-Im’s line of credit, small businesses exporting expensive capital goods would have to slow down and wait out the unusually long payment cycles of international business — which just isn’t feasible. As Simoes says, “Ex-Im is necessary for small business.”

In short, Ex-Im is indispensable for small exporters. It provides them with credit insurance, lines of credit, and working capital guarantees without which many of them just couldn’t export. Due to regulatory constraints, commercial banks would be unable to fill the void.

As members of Congress consider legislation to reauthorize Ex-Im, America’s small businesses are watching. In many instances, it isn’t just jobs hanging in the balance— the future of many small businesses is on the line. 

About the Author

About the Author

Fellow, International Policy