Until nearly two years ago, First of America Trust Co. in Champaign, Ill., hadn't done any export financing for small companies.

Then it was approached by a local manufacturer of heavy equipment that wanted $800,000 in inventory financing so it could fulfill a contract in the Far East.

The bank, a unit of First of America Bank Corp., Kalamazoo, Mich., looked at the deal and blanched.

"We realized the exposure they were going to be undertaking was something we wouldn't be comfortable with as we would with domestic-based receivables and orders," said John Waddock, the unit's senior vice president of commercial lending.

Eventually, the bank discovered the Small Business Administration's export working capital program. By working with the agency - which then guaranteed 90% of the loan - Mr. Waddock was able to make the loan.

Now the bank and the company are enjoying a profitable relationship that consists of $3 million in lines of credit, Mr. Waddock said.

Mr. Waddock is one of a small number of bankers - small but slowly growing, according to anecdotal evidence - who recognize small businesses that export as a profitable niche to serve.

Exact figures on the number of small exporters and the banks that lend to them are difficult to nail down. But experts agree that the financing needs of the small businesses are grossly underserved.

For example, a new Coopers & Lybrand survey of 434 fast-growing small businesses found that 47% of the respondents exported, and that they expect higher revenue growth this year than their peers. But only 4% of the exporting group turn to banks, venture-capital firms, or finance or factoring companies to fund their export operations, according to the survey, released last month.

A whopping 92% of the exporters relied on their working capital, and 2% cited public agencies as financing sources.

Moreover, a February survey by the Small Business Exporters Association, a trade group based in Annandale, Va., found that 57.3% of respondents had trouble getting access to export financing. The survey was of 171 small businesses.

Marty Duggan, executive director of the association, said small exporters need financing for various reasons, ranging from costs related to transactions to building inventory and buying materials and equipment.

"There are people out there who, with the proper funding, could do three times the volume they're doing," Mr. Duggan said.

Bankers and industry experts cite a range of reasons why there is a lack of service in this area.

Mr. Waddock, speaking from experience, said many bankers are simply scared to do business involving foreign lands, because they don't know how. The extra risks include international transport and whether the foreign buyer can pay.

Small banks typically lack the expertise to handle these deals, bankers and other observers say. Big banks know how, they say, but can't make the deals cost-effective.

But a number of community banks across the country - many of them Asian- American owned - have made this their niche. Los Angeles-based Grand National Bank is one of them.

"We can compete against the big banks because they don't want to do it, and we can compete against the little banks because they don't want to do it," said chief executive Cary Ching.

Federal and state agencies are trying to encourage more players to get into the field.

For example, the SBA has offered a working capital program for exporters since 1994. The agency will guarantee a portion of loans of up to $125,000.

"Banks, generally speaking, are not looking to do this kind of lending, so we have to sell this program to them," said Grant MacKinnon, senior international trade and finance specialist.

But Mr. MacKinnon said the agency's efforts have been hobbled by Congress, which last year lowered the guarantee rate to 75% from 90%. This cut demand, he said.

The SBA backed 212 loans totalling $75 million in the fiscal year ended last Sept. 31, Mr. MacKinnon said. Through July 1 of the current federal fiscal year it had backed 155 loans totalling $53.9 million.

The agency is lobbying to restore the 90% guarantee, Mr. MacKinnon said.

Martin Kamarck, chairman of the Export-Import Bank of the United States, said it has been sharpening its focus on small business over the past two years, providing banks with an array of lending and insurance programs.

He said he's confident that government efforts, as well as competitive pressures, will drive banks to serve small exporters better.

"Banks, as they're getting more competitive, are starting once again to reach down in the size of customers" they want to serve, he said. And "the quickest way to grow a small business is to help it export."

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