International Trade: Funding Your Expansion

Many businesses turn to global trade for expansion. But for mid-size businesses (SMBs), the decision may not be an easy one. It’s not a lack of confidence in your products’ appeal that gives pause; it could be uncertainty about the current economic environment, a lack of funding or the potential risks of export trade. While these concerns may be legitimate, the potential for growth outweighs the risks and financing solutions are readily available.

The COVID-19 pandemic landed a hard blow to global trade. But 2021 saw a record high of $28.5 trillion, an increase of about a 23% from 2020.1 And while this level of growth isn’t expected in 2022, there’s clearly a green light for businesses that have exported in the past.

Why is international trade important? There are good reasons to consider the export market. Diversifying your revenue base is a prime reason for pursuing an international presence. Global expansion was the second most important priority (behind optimizing margins and reducing costs) for executives over 12-18 months.2

The reasons for exporting are compelling.

• You’ll extend the product life cycle when selling to markets less developed than the domestic market.
• The cyclical or seasonal nature of some products can be minimized.
• Fixed costs can be spread over a greater volume of goods sold, while establishing new sources of revenue.

All businesses, including SMBs, can benefit from exporting and should continue to look beyond the borders for growth.

Who is involved in trade finance?

Deferring payments on purchased goods and services is essential for international trade. Eighty to ninety percent of world trade is dependent on trade finance.3 In early 2020, the pandemic slowed international trade and threatened to impact the cost and availability of export financing. In response to the threat, governments instructed their export credit agencies to fill the financing need as best they could.4

As an SMB, it is possible to access working capital prior to the time of export. The U.S. government has a well-established program, the Export Working Capital Program (EWCP), to meet the capital needs of small businesses trying to fulfill new export orders. The EWCP is offered through the Export-Import Bank of the United States (EXIM) and the Small Business Administration. The program provides lenders with a 90% guarantee as a credit enhancement for export loans to support working capital financing.5

Through the EWCP, businesses engaged in exporting have access to capital throughout the manufacturing process and product sales. The program allows a bank to offer advances against loan collateral they wouldn’t normally be able to finance. For example, the program provides 75% for work in process and finished goods inventories; and 90% for foreign accounts receivable.

The key to accessing export financing is to have real customers with real orders. Once these are established, you can work with a financial institution to understand how much funding is available.

Participation in the EWCP carries strict criteria.

The requirements for EWCP eligibility are straightforward and non-negotiable.

• Each product must be shipped from the U.S. to a foreign buyer.
• Each product must have more than 50% U.S content based on all direct and indirect costs, including but not limited to labor, materials, direct overhead, research/development, and administrative costs, exclusive of profit.
• Country of export must comply with the EXIM Bank Country Limitation Schedule.
• Military sales are prohibited.

It’s important to work with a financial institution that understands the ins and outs of international trade finance. An experienced banking partner can not only offer financing, but also help mitigate potential trade risks.

If you’re interested in international trade finance, contact Synovus Treasury and Payment Solutions, your Treasury Consultant, or Relationship Manager to see what’s possible.