Community banks have long been skittish about financing international trade deals, but Mike Selfridge, a California banker, says now may be a good time for them to get over their fears.
Mr. Selfridge, SVB Financial Group's global products and regional head of Europe and Israel, said the $6.1 billion-asset Santa Clara company's Silicon Valley Bank has helped its customers finance the sale of medical equipment, software, semiconductors, and other products worldwide for years using government-backed loan guarantees offered by the Export-Import Bank.
With lending opportunities in real estate and construction becoming increasingly scarce, Mr. Selfridge said, small banks "are going to have to find other ways to grow."
Most are looking to do more commercial lending, he said, and many commercial customers are increasingly selling their goods and services abroad and will need financing.
"I think you're going to see banks taking a more aggressive posture to start getting into the middle market and corporate lending," Mr. Selfridge said. "If that's the case, and they're going to segment companies that are global in nature or big exporters, they're going to need to be familiar with various trade finance products and the Export-Import Bank.
The Small Business Administration, which offers export loan guarantees through its Export Express program, and the Independent Community Bankers of America are trying to convey a similar message.
Paul Merski, the ICBA's chief economist, said that the sharp decline in the value of the U.S. dollar has created strong demand for U.S. products abroad, and that the trade group is encouraging its members to finance trade deals.
"Basically, the global economic conditions are favoring small businesses to export, so the demand for these Export-Import Bank finance services" has been growing, Mr. Merski said.
Patrick Tunison, the SBA's chief international lending officer, said that even though there has not been a significant uptick in banks using the agency's programs, the "subprime mortgage mess" is driving an increase in inquiries.
"Maybe they passed it over one or two times before because the real estate market was so strong," Mr. Tunison said. "Now they're saying, 'We better learn something more about this business, because we can't just count on home equity loans and buying first mortgages and refinances, because the markets have dried up.' "
The Ex-Im Bank and the SBA help banks and companies export goods by offering working capital loans or insurance policies. Their programs provide financial guarantees in the event a foreign buyer defaults or the exporter cannot pay back the bank loan.
But even with the promise of a government guarantee, many small banks are reluctant to finance transactions abroad, because they do not have the expertise.
Recently the Ex-Im Bank has been stepping up efforts to encourage small banks to use its programs. In each of the last two years it has hosted an average of 220 educational seminars, compared with an average of 150 in previous years, and it is working closely with the ICBA and the American Bankers Association to increase access to bankers. It also is enlisting its bank partners, as well as state and local chambers of commerce and economic development offices, to spread the word.
"I only have two dozen salespeople for the entire country, and we're trying to reach 235,000 small-business exporters," said John Emens, the bank's senior vice president for small business.
Its efforts are paying off modestly. The Ex-Im Bank is mandated to allocate at least 20% of its funding to small-business exporters, and in the last two years it has surpassed that benchmark. Over 26% of its funding goes to small-business exports, Mr. Emens said, and it added roughly 40 lenders in the last two years, about half of which are community banks.
The Ex-Im Bank offers banks working capital guarantees of up to 90% of a loan to an exporter, as well as insurance policies to exporters and buyers abroad.
The SBA offers a guarantee of up to 90% on export loans of up to $250,000 and is looking to raise the cap to $350,000 to increase participation.
Mr. Tunison said that because the two agencies have different mandates, they will hand off loans to each other. For example, the Ex-Im Bank requires at least 50% of an export's content to be made in the United States. The SBA's Export Express has no such requirement. Also, the Ex-Im Bank cannot finance or insure an export to a foreign government's military. The SBA's program can.
"So if you have a company that's doing business with a foreign military that would normally be an Ex-Im customer, they are more or less forced into being an SBA customer," he said.
The agencies also coguarantee loans occasionally. Fulton Bank in Lancaster, Pa., had handled international letters of credit for its business customers, but in 2004 it got a request to provide working capital to a borrower looking to do more exporting.
The cost and risk was too large for the bank alone, so it contacted the SBA and the Ex-Im Bank, said Lou Tierno, an international banking officer for the lead bank of the $15.9 billion-asset Fulton Financial Corp.
Both agencies combined to back a working capital loan. "If we have a customer with some needs that we could not ordinarily handle on our own, we now have some way of providing solutions for them," Mr. Tierno said.
One argument Mr. Emens makes to community bankers debating whether to offer trade financing is that by not doing so, they can become vulnerable to losing their customers to banks that do.
"We help community banks hold on to existing clients as well as expand their product offerings," Mr. Emens said.
He added that skeptical bankers might want to consider attending inustrial trade shows. "I speak to dozens of exhibitors at these events," he said, "and they report that the number of foreign visitors has increased, and that they are much more serious buyers than they have been in past years."
