Then came the Third World debt crisis. That led many banks to shy away from everything international even though their losses were from loans to Latin American governments, not U.S. exporters. It didn't help that legislation passed after the debt crisis increased banks' required documentation of international transactions.
The problem is compounded by the fragmentation of the U.S. banking industry. What little international-trade expertise there is, is concentrated in big banks -- not the local banks that most small companies use. Because many banks have now pulled away from export financing, those left are free to focus on the most profitable deals, which are generally the largest. As a result, in some regions the minimum transaction size that banks will consider is $1 million. Meanwhile, Census Bureau statistics show that 85% of all exporters have average shipments of less than $25,000. What we have today is an export-finance structure way out of touch with the times, one that completely fails the small exporters that are increasingly important to our economic health.
In fairness to U.S. bankers, they may be in a no-win situation. Because there are so few frequent exporters, banks have a hard time generating economies of scale in export finance. The many infrequent exporters require too much hand-holding to be profitable.
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One solution would be government programs either to educate infrequent exporters or to reduce bankers' risks in international loans. After all, governments all over the world get involved in promoting their exports.
Such programs already exist in this country, but they too suffer from our national apathy about exporting. Consider the Export-Import Bank (Eximbank), the U.S. export-finance agency. It provides loans, guarantees, and accounts-receivable insurance to U.S. exporters. There are comparable agencies in 82 other nations. However, Eximbank is among the least aggressive, according to Delio Gianturco, whose firm, First Washington Associates Ltd., advises governments about export credit. Gianturco's research shows that in most industrialized countries the national export-finance agency provides funding to about 13% to 15% of all export transactions, and in most developing nations the percentage is about 5% to 7%. In contrast, he says, Eximbank helps finance less than 2% of all U.S. export transactions. Eximbank used to do more, according to Gianturco. However, the agency was a victim of 1980s budget cuts.
The problems run deeper than budget cuts, though. While many other nations subsidize their export financing, Eximbank's lending is expected to be self-sufficient. As a result, the agency is scrupulous about dotting its i's and crossing its t's, especially since it, like the banks, wrote off a lot of bad loans in the '80s. Both of the Eximbank programs aimed at small companies -- the Foreign Credit Insurance Association program, which insures foreign receivables, and the working-capital-guarantee program -- can be difficult to work with.
Ask David Lamb. His family's midsize company, Lamb-Gray's Harbor Co., manufactures equipment for paper mills. Based in Hoquiam, Wash., Lamb-Gray's Harbor exports extensively -- and as the dollar has declined, the company's sales have soared from $27 million in 1987 to a 1990 record high of $120 million. In the process, Lamb often found himself moving projects that required outside financing to the company's Canadian plant. That's because it was so much easier to work with Canada's Export Development Corp. than with Eximbank. "At Exim we suffered the bureaucratic runaround," Lamb says. "We've generally found in Canada a much more responsive environment for putting these things together. They look upon it as something of national strategic importance."
Still, Lamb recently had his first successful experience with Eximbank. With the aid of the Export Assistance Center of the state of Washington, his company got its first working-capital guarantee. That reflects one of the rare bright spots in U.S. export finance: the increasing effectiveness of a few state programs.
Probably the most impressive is California's. Since its inception with a $2-million fund, in 1985, the California Export Finance Office has issued 271 working-capital guarantees, leading to export sales of $290 million. It is similar in structure to Eximbank's working-capital-guarantee program but can work more closely with local banks and can provide technical assistance to inexperienced exporters.
Unfortunately, when it comes to export finance, only a handful of states can compare in any way with California. It committed a substantial amount of money to export financing, an example few states are likely to follow now that so many state budgets are in the red. There are, however, 11 states that play the role Washington State officials did for Lamb-Gray's Harbor. Those states take part in a marketing program launched by Eximbank in late 1987 to train state and city personnel as Eximbank loan packagers. The local officials help small companies deal with the applications paperwork and steer them through the organization. They often refer companies to private-sector money and provide technical export information.
Such programs do help exporters, but they have their limits. The biggest is that with no money of their own, the state officials must work within the constraints of Eximbank and Small Business Administration programs. (The SBA has an export revolving line of credit, but it is seldom used and is being revamped.) "We really have no other options," laments one state official.
Although it's a shame that we need state bureaucracies to interpret federal ones, the states' involvement is a definite plus for small companies. Another encouraging change is under way at the United States & Foreign Commercial Service. US&FCS is the branch of the Department of Commerce assigned to help U.S. companies with international marketing. Because more and more exporters have been coming to US&FCS's district offices with financing problems, the agency plans to train its staff in the subject and put together regional databases of financing sources.
