[Federal Register Volume 59, Number 182 (Wednesday, September 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23339]
[[Page Unknown]]
[Federal Register: September 21, 1994]
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SMALL BUSINESS ADMINISTRATION
Pilot Export Working Capital Program
AGENCY: Small Business Administration.
ACTION: Notice of Pilot Program.
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SUMMARY: The Small Business Administration (SBA) is issuing a notice to
advise the public that it is beginning the Export Working Capital
Program (EWCP) on a pilot basis nationwide. The pilot program is
scheduled to end September 30, 1995, at which time it will be evaluated
to determine what, if any, aspects of the pilot should be made
permanent. This notice is issued pursuant to Sec. 120.1-2 of SBA's
regulations (13 CFR 120.1-2).
Under EWCP, SBA guarantees short-term working capital loans made by
participating lenders to exporters for the purpose of financing export
transactions. EWCP is intended to replace SBA's Export Revolving Line
of Credit (ERLC) Program. Accordingly, the regulations for the ERLC
Program (13 CFR 122.54) will not apply to EWCP loans.
The SBA and the Export Import Bank of the United States (ExIm Bank)
are working to harmonize their export financing programs. Accordingly,
many features of SBA's EWCP and ExIm Bank's Export Working Capital
Program are similar. By design, SBA's Program will assist smaller
businesses that need a guarantee of $750,000 or less and ExIm Bank's
Program will serve the larger businesses and small businesses that have
larger credit needs.
EFFECTIVE DATE: October 1, 1994.
FOR FURTHER INFORMATION CONTACT:
Wayne Foren, Office of Financial Assistance, (202) 205-7502.
SUPPLEMENTAL INFORMATION: EWCP loans are made under the authority of
SBA's regular business loan program known as the 7(a) Program. The
policies and procedures governing the EWCP pilot are contained in
operating guidelines developed for the Program. These guidelines
describe the eligibility, credit and processing considerations for the
Program.
Eligibility Considerations
Under EWCP, SBA guarantees short-term working capital loans made by
participating lenders to exporters. Loan proceeds may only be used to
finance the acquisition or production of goods and services being
exported and accounts receivable of such export sales under EWCP.
A Pre-shipment Guarantee is used to finance the
acquisition or production cost of export goods and services. The term
of these loans is usually no more than 12 months. Payment is secured by
letter of credit, valid purchase orders or contracts, or other such
arrangement.
A Post-shipment Guarantee is used to finance receivables
resulting from export sales. The maximum term of these loans should not
exceed 6 months.
A Combined Guarantee is used to finance both the
acquisition or production of export goods and services and the account
receivables resulting from such export sales. The maximum term of a
Combined Guarantee is 18 months.
Although payment may be made through one of several arrangements,
usually ExIm bank insurance (or other comparable insurance) will be
required in conjunction with an EWCP Guarantee where Post-shipment or
Combined guarantees are being extended unless payment is being made by
a confirmed, irrevocable letter of credit.
A loan Guarantee may be for a single transaction or for a Revolving
Line of Credit which is used to finance ``bundles'' of individual
transactions. Credit lines may be for as long as three years subject to
annual renewals. Such renewals will be granted unless an adverse change
has occurred in the exporter's financial condition or operations
sufficient to jeopardize its ability to perform on export transactions.
If a Line of Credit is terminated, no additional bundles will be
financed and a reasonable period will be provided to liquidate the
outstanding balance on the Line of Credit.
Standby letters of Credit are issued by a bank to cover a
particular contingency. Frequently, they are used in place of a bid,
performance or financial bonds. EWCP loans can be used to facilitate a
Standby Letter of Credit.
Most products are eligible for EWCP financing. In some cases,
however, Federal restrictions cause the product to be ineligible. For
example, if ExIm Bank export credit insurance is required, the product
must contain at least 51% U.S. content. Also, certain defense products
are not eligible for ExIm Bank insurance. Where the product is
customized or designed for special use, care must be taken to assure
that the exporter has sufficient capability of payment should the
transaction not be consummated.
Although service exports are eligible for EWCP financing, they
entail greater risk than product exports, especially those that are
independent of product sales. EWCP financing of service exports usually
will require progress payments and possible additional collateral.
Applicants who produce, manufacture or sell products or provide
services that enter into the export channel but do not directly export
their products or services, including suppliers to other domestic
manufacturers, are eligible for EWCP financing. In such cases, the
applicant shall provide evidence to SBA that the goods or services are
in fact being exported.
The dollar amount of the SBA Guarantee is of an EWCP loan limited
to the lesser of two factors. First, EWCP loans are limited to the
exporter's cost, if they are for Pre-shipment financing, or the
receivable associated with the product being exported, if they are for
Post-shipment or Combined financing. Second, with few exceptions, the
maximum guarantee amount that may be outstanding or committed to any
small business concern under the 7(a) and the 504 Programs in the
aggregate is $750,000. EWCP loans are considered 7(a) loans for this
calculation.
As is the case for Regular 7(a) loans, EWCP loans of $155,000 or
less will be eligible for an SBA Guarantee of 90 percent of the
principal amount of the loan. For loans over $155,000, the SBA
Guarantee may not exceed 85 percent; however, loans made under the
SBA's Preferred Lender authority may not exceed 70%. It is noted that
legislation is pending before the Congress that would increase the
maximum guarantee coverage for all EWCP loans to 90 percent. This
legislative change will cause the guarantee percentage to be the same
as ExIm Bank's guarantee percentage.
SBA will monitor, but not regulate, the interest charges and fees
imposed by lenders for EWCP loans. This approach is consistent with the
policies of ExIm Bank and most state export finance programs.
A $100 application fee will be assessed each applicant for an EWCP
loan application or a Preliminary Commitment (PC) application. However,
an application fee will not be assessed to the lender on a loan
application for an exporter who had previously received a Preliminary
Commitment and paid a fee. The normal guarantee fee for 7(a) loans will
be assessed: One quarter of one percent (.25%) for a loan under one
year and two percent (2%) for loans over one year.
As previously stated, an SBA guaranteed EWCP loan is obtained by an
exporter from a lender participating in SBA's EWCP loan program. The
exporter and the lender prepare the loan application which the lender
submits to SBA for a loan guarantee.
In cases where an exporter is unable to find a lender willing to
make the loan, the exporter can submit an application to SBA for a
Preliminary Commitment. A PC is a 60 day conditional commitment issued
by SBA to an exporter specifying that SBA will guaranty a loan to the
exporter in accordance with the terms and conditions specified in the
PC. It should be noted that PCs are not required as an interim step to
obtaining an EWCP loan; rather, they help an exporter find a lender who
will make the loan. Another benefit of PCs is that they allow an
exporter to take advantage of SBA financial counseling and technical
assistance without first having a participating lender.
In some areas, SBA approved Intermediaries will be available to
assist exporters in loan packaging, deal structuring and credit
analysis. Pursuant to an agreement with the exporter, these
intermediaries may charge an amount not to exceed 1% of the loan
amount. SBA approved resource partners will be available to assist
exporters with management and technical assistance.
Applicants must be identifiable small businesses organized in the
United States as for profit entities with operations in the United
States. The size standards applicable to regular business loans under
the 7(a) program also apply to EWCP loans. While a business organized
and/or located outside the United States is ineligible for EWCP
financing, a U.S. subsidiary of a foreign corporation may be eligible.
Finally, Export Trading Companies and Export Management Companies are
eligible for EWCP financing if they take title to the goods being
exported.
Applicants must have sufficient experience and capability to
complete the export transaction. Generally, exporters should have been
in operations, though not necessarily in exporting, for at least 12
continuous months prior to filing an application. Exceptions will be
considered where the applicant is a new business but the principals
have proven expertise in the exporter's line of business.
The exporter's ability to perform is one of the most important
considerations in the EWCP loan making process. This includes the
exporter's ability to acquire or produce the export product or service,
complete the export transaction, and present the proper documents for
payment. Therefore, loan applications shall be approved only where such
performance capability is determined to exist.
Credit Considerations
All SBA guaranteed loans, including EWCP loans, are statutorily
required to demonstrate reasonable assurance of repayment. Usually,
regular 7(a) loans are term loans and collateral is not linked to loan
repayment. Assessment of the applicant's ability to repay the loan from
operations over an extended period is a primary concern and collateral
is important as a secondary source of repayment. Strength of the
balance sheet including net worth and liquidity are essential as well
as the reasonableness of projections.
Conversely, EWCP loans are short-term and transaction-based. The
primary repayment source is the collateral associated with the
transaction in which the lender has taken an assignment. The primary
concern is the borrower's ability to perform on the contract and the
ability to realize on the collateral. The horizon is short on these
transactions. Balance Sheet strength, reasonableness of projections,
etc. are important only as they relate to the primary concern.
SBA does not assess foreign commercial or political risk.
Therefore, exporters are required to have an acceptable letter of
credit, valid purchase orders and contracts, acceptable export
receivables and/or ExIm Bank export credit insurance or private
insurance that is acceptable. Transactions financed by EWCP loans must
be payable in U.S. dollars unless SBA permits otherwise on an
exceptions basis. This policy addresses both the foreign currency and
foreign exchange risks.
It is essential that EWCP loans be secured with a first lien on all
collateral associated with the transactions financed by the loan. Also,
an assignment of proceeds from the borrower to the lender shall be
required as a condition to SBA's guarantee. SBA has modified its policy
on personal guarantees due to the short-term nature of these loans and
their structure.
Subject to appropriate approvals, SBA and ExIm Bank plan to
utilize, under the pilot, a joint loan application form. This will
enable potential borrowers to better understand the program functions
and uses. Also, it will facilitate the referral of applications to the
appropriate Agency. Other SBA forms required by law or policy will be
used by SBA during the pilot.
Processing Considerations
EWCP loan applications are processed on a three track system. Track
one is regular processing and all participating lenders in EWCP have
the authority to submit EWCP loan applications on this track. Track two
is the Certified Lenders Program (CLP) where greater reliance is placed
on the lender's analysis and three day turnaround is the standard.
Track three is the Preferred Lenders Program (PLP) where lenders are
given delegated authority to make loans.
In addition to regular processing, EWCP participating lenders that
meet the eligibility criteria for CLP and/or PLP will have the
authority to submit loans for processing on track two and/or three as
the case may be. It should be noted that all EWCP participating lenders
must have successful experience in providing trade finance to exporters
and an acceptable collateral management system. Also, it is noted that
all applications for Preliminary Commitments will be processed on track
one, regular processing.
SBA District Offices that have affiliated U.S. Export Assistance
Centers will be processing centers for EWCP loan and Preliminary
Commitment applications. Other District Offices may be designated as
EWCP processing centers based on activity and capability. District
Offices that are not so designated will forward loan applications for
processing to the designated EWCP processing center. All SBA district
offices, whether or not designated as processing centers, will promote
the pilot program and will continue to offer business development
assistance to exporters. During the term of the pilot, the SBA Office
of International Trade will work closely with the SBA processing
offices to provide technical support on loan structuring and foreign
risk assessment.
Because EWCP loans are short-term and often require swift action by
staff familiar with the loan, the SBA recommending loan officer will
retain the responsibility for loan servicing. If the lender does not
handle the loan liquidation, the SBA district office which approved the
loan will liquidate it.
During the pilot, EWCP loans will not be eligible for sale in the
secondary market that exists for 7(a) loans.
In summary, SBA's Export Working Capital Program is a loan
guarantee program for exporters to provide transaction financing. There
are three important considerations in this program: (1) The existence
of a transaction(s), (2) the capability of the exporter to perform and
satisfy the requirements of the transaction(s), and (3) loan repayment
(adequacy of documents, security interest in the collateral and
assignment of proceeds).
Dated: September 15, 1994.
Erskine B. Bowles,
Administrator.
[FR Doc. 94-23339 Filed 9-20-94; 8:45 am]
BILLING CODE 8025-01-M
