Only 10 years ago, small businesses would have found exporting to markets like China unthinkable. Recently, however, factors such as advances in technology and increasing Internet use have changed that, allowing businesses to sell their products and services in nearly any market in the world. Idaho businesses are an excellent example of this expansion. Data from the Idaho Department of Commerce show that businesses in the state sold a record $5.89 billion in exports in 2011, an increase of 14 percent, or more than $700 million, from 2010 and more than double the amount a decade ago.
As companies consider growing their businesses in the export market, it is important to be aware of several factors, including financial ramifications such as how to pay for start-up costs, how to price products and services, and how payments will be processed. Fortunately, Zions Bank offers services that can help companies address all of these issues.
If a company is in the early stages of determining whether international trade is a good avenue to pursue, financing may be available from the U.S. Small Business Administration (SBA). This financing — up to $500,000 — can be used for any export purpose, including market development, attending trade shows or participating in trade missions,and securing export licenses. Once a company is prepared to export, the SBA’s Export Working Capital Program (EWCP) can assist with financing up to $5 million. A EWCP loan may be secured before finalizing an export sale or contract to ensure that the necessary financing is in place. Finally, the SBA offers international trade loans designed to help position businesses for success in the global market. Funds can be used for a variety of purposes including acquisition, construction, renovation or expansion. This financing is also available to a maximum of $5 million. For larger transactions, Zions Bank can use its Ex-Im bank (designated authority) to increase the SBA limit to $10 million.
Emerging markets such as China and India offer huge growth potential, but they can be more complicated because of distances and, in some cases, language barriers. In an ideal world, businesses would receive payment in advance from a buyer, but that typically does not happen. If an advance payment is not possible, a letter of credit may be the best option. The buyer’s bank will issue the letter of credit in the name of the business and. essentially guarantee that the bank will provide payment to the seller. Banks in the U.S. can help with this process in a number of ways. For example, Zions Bank assists its clients with the structure of the letter and reviews it to ensure that the best possible deal is obtained. In addition, we help clients secure payment from the overseas bank through the letter of credit. We also can confirm the letter of credit and issue a payment immediately, taking on the risk of repayment for the seller. Another important function of a letter of credit is that it can enhance the business’s ability to obtain financing, which can be an obstacle because most banks will not lend against foreign receivables.
A key consideration in exporting is whether to price the product in U.S. dollars or foreign currency. One advantage to pricing in local currency is that the buyer’s cost is not increased due to a conversion rate, which can in turn affect the seller’s ability to price competitively and, in some cases, reduce costs. Multi-currency accounts offer an advantage by allowing the exporter to deposit several types of foreign currency in the same account and make payments from that account without the need to convert to U.S. dollars for every transaction. Zions Bank has broad experience in dealing with foreign currencies and can advise the business owner on the best course of action to both ensure competitiveness and to increase profits.
Whether a business is a beginner or a seasoned exporter, the wide array of banking resources available to Zions Bank’s clients can significantly enhance the experience. As the only bank with an Idaho-based international banking team, Zions Bank can help with financial issues as well as provide referrals — to state agencies, universities and small business development centers — all of which can ensure success in many types of international trade ventures.
Gary DeGrange and Lee Gibbs are part of Zions Bank’s International Banking team. DeGrange, a 30-year industry veteran, helped establish the first international banking department in Idaho. Gibbs has 35 years of experience in banking and is a seasoned U.S. Small Business Administration export lender.