Small Business Administration Loan Guarantee

Small Business Administration Loan Guarantee

The Small Business Administration (SBA) is a principal federal agency involved in import and export promotion. The four primary activities are undertaken by the organization that aims to promote small business exports consist of outreach, counseling, and training, trade leads, and financing. However, this paper seeks to evaluate the small business import-export market in the U.S. and how the SBA finances such enterprises through its several loan guarantee programs. Furthermore, it is essential to note that the SBA Loan Guarantee places more emphasis on the potential of small business export promotion programs. Thus this paper will also be more inclined towards this aspect as compared to the import industry.

Overview of U.S. Small Business Imports and Exports

The U.S. international market is a significant economic driver. Moreover, such markets are subject to faster growth and are more resilient to the changing faces of the economy. According to the U.S. Census Bureau, in 2017, 97.5% of companies exporting manufactured products were small businesses (1). This suggests that the American small businesses which support numerous jobs, totaling approximately 84.7 million, possess the innovation and entrepreneurial spirit required to drive the economy (Baughman and Francois 9). Furthermore, regardless of their high concentration, small and medium-sized enterprises (SMEs) only account for nearly one-quarter of the value of U.S. merchandise exports. This illustrates that opportunities are still existent in the small business export industry. It is evident that entrepreneurs realize the benefits of trade; therefore, it is essential to assist them in harnessing the power of commerce to grow their business.

Role of the SBA in Financing Small Business Imports and Exports

In the current market, access to capital is essential, and the SBA plays a crucial role in providing such resources to support small business international trade businesses. Expanding beyond the domestic borders requires substantial initial capital investment, which is not easy for many small business owners. Therefore, through the Office of International Trade (OIT), the SBA can provide the necessary service to its target audience (Lowry 3). The OIT is an entity under the SBA whose primary responsibility is to coordinate the import-export promotions that the SBA offers. The OIT provides loan guarantees that enable small business importers and exporters to secure funding from private lenders in the form of facilities developmental loans for fixed assets and working capital loans for operations.

Export Promotion-Focused Loan Programs

The SBA loan guarantee program provides loans to support small businesses in international trade. Similar to other non-import or export SBA loans, the loans require the participation of a lender, which in this case is usually a banking institution. Nonetheless, they warrant up to 90 % of the loan, while the former warrants a range between 50-75 % of the loan amount (Lowry 6). To be eligible for an SBA Import-Export loan, a business has first to meet the SBA’s definition of a small business, which differs industry-wise. However, it applies to companies having a tangible net worth of $15 million or less and net income after taxes for the previous two years of $5 million or less (Lowry 6). SBA offers small business loans and line of credit through three loan guarantee programs:

Export Working Capital Program (EWCP)

The EWCP supports small businesses in the export industry by offering working capital to enable them to fulfill their export operations. These include purchasing inventory to cater for export sales, paying suppliers, handling long customer payment cycles, and financing production. It is structured to guarantee loans up to a maximum limit of $5 million (Lowry 6). The duration of the export working capital loan processing is often up to 10 business days (Lowry 6). To qualify for the EWCP, small businesses have to meet several requirements: they are required to have been in operation for a minimum of a year, the export activity has to be existent in a foreign market, the export activity is insufficient to fund offshore operations, and a comprehensive one-year business plan illustrating how the proceeds from the loan will be used to be presented.

Export Express Loan

The eligibility requirements for the export express loan is similar to that of EWCP. It is regarded as the most straightforward and flexible export loan offered by the SBA as it covers a variety of functions, for instance, the acquisition of fixed assets, market development, and refinancing of other export loans. The loan is typically defined as a term loan or line of credit and guarantees up to a