Despite the sputtering economy, there’s never been a better time for small businesses to start selling overseas. Two factors make the exporting climate particularly strong for U.S. businesses today.
First, the U.S. dollar is inexpensive in comparison to many international currencies, making U.S. exports more attractive to foreign buyers.
Second, President Obama has made U.S. exports a top priority. His recently announced National Export Initiative aims to double U.S. exports by 2015, largely by assisting small and mid-size businesses interested in exporting.
The initiative has brought together 21 government agencies to help potential exporters learn more about expanding internationally, finding foreign customers, and securing needed financing, says Richard Ginsburg, senior international trade specialist for the Small Business Administration.
“We are trying to reach out to 2 million small business prospects in the next 18 months to convert them to a global mind-set and [help them] begin seeking foreign buyers,” Ginsburg says.
If you’ve considered taking your business overseas but have resisted because of economic uncertainty and other fears, the time may be right — as long as you follow the correct steps.
The first steps to exporting are identifying appropriate products, researching which countries have the best consumer demographics for those products, and locating buyers within those countries, says Leah Cochran, president of Glocal Consulting, an international trade firm in Atlanta. You may need to tweak or even redesign existing products to suit local cultural norms, or create new packaging to comply with laws such as Canada’s requirement that all packaging be printed in both French and English.
To find reliable foreign customers, Cochran recommends tapping government initiatives such as the Department of Commerce’s Gold Key program, in which foreign embassy representatives match pre-screened buyers with U.S. exporters. The U.S. Department of Agriculture runs a similar program, the USDA Foreign Agricultural Service, for food and food-product companies. Offering an extra boost, the National Export Initiative increased the number of staff with small business export knowledge at U.S. Export Assistance Centers, so they’re a great place to get free advice on finding appropriate countries and customers.
“The agencies will set up meetings for you with buyers or take you on trade missions,” says Cochran. “They really help you sort through all the steps.”
Once a small business connects with an overseas customer, it often needs financial assistance. A large foreign order may require millions of dollars in upfront capital to purchase materials for manufacturing the goods. A strong relationship with a merchant bank experienced in international finance is key to securing needed export financing, says Small Business Exporters Association chair Susan Corrales-Diaz, whose Southern California firm, Systems Integrated, exports to several countries.
It’s important to find a bank with an established relationship with the Export-Import Bank, the U.S. government’s export credit agency, Corrales-Diaz says. Ex-Im Bank offers loan guarantees and direct loans for working capital, and it can team up with the SBA to facilitate larger loans than the SBA can guarantee on its own.
Banks with “delegated authority” status from Ex-Im Bank have a fast track to the agency’s loan guarantees and loan funds. Ex-Im maintains a list of these banks on its website, but spokesperson Phil Cogan advises calling your nearest Ex-Im regional office for a referral to the bank most active in exporting near you.
These financing sources are particularly eager to assist small business owners right now. President Obama’s Export Initiative granted Ex-Im Bank $2 billion in additional funding specifically targeted for small businesses. For its part, the SBA extended its Export Express loan program, which provides businesses up to $250,000 to attend trade missions and trade shows and participate in other activities that help them connect with foreign buyers.
Once you’ve obtained the financing to make and ship your product, you need to ensure that your company gets paid. While small-scale or first-time exporters might try getting paid through PayPal or another online service, fees can be higher than through some bank payment methods. An experienced merchant bank can offer a wider range of payment options, such as the following.
- Documentary collections: The international equivalent of a cash-on-delivery transaction, documentary collection requires the foreign buyer to pay for goods on delivery.
- Letters of credit: The buyer’s bank extends credit to the buyer, providing a higher level of payment assurance. Another tool is a standby letter of credit, in which a seller’s bank provides payment only if the buyer fails to pay.
- Open account: An account is created at the seller’s merchant bank, into which the buyer deposits payment after it receives a shipment. Open accounts are typically riskier than the other methods and usually used only after a high level of trust has been established between buyer and seller.
Once a business has secured financing, the risky business of exporting gets underway. A lot can go wrong here: Goods fall off shipping barges, foreign banks are nationalized, wars break out, and companies go bankrupt. The Ex-Im Bank and private companies offer insurance policies that cover the full range of risks associated with foreign trade.
Another primary exporting risk comes from currency fluctuations. An experienced export bank can offer a range of risk-management programs designed to safeguard your business against price drops due to sudden currency fluctuations.
Only an experienced export bank can provide the elements a small business needs to complete its export sales successfully and safely, including financing, payment options, foreign-currency protection, and assistance in obtaining insurance, says Corrales-Diaz. Call your regional Ex-Im office or ask successful small business exporters you know for a referral to get started with the right merchant bank — one that can help make your exporting effort a success.
Federal government agencies provide many resources for companies interested in exporting. Here are a few from the SBA, Export-Import Bank, Department of Commerce, and the government’s main exporting portal, Export.gov.