Financial flow | Resources lining up to help pressed Maine exporters find credit
Photo/Tim Greenway
Jeff Holden, president and owner of Portland Shellfish Co., says problems getting credit for exporting could hurt his business
Thanks to the decreased value of the U.S. dollar and the strength of the euro and the pound, Portland Shellfish Co.’s customers in Italy, France and the United Kingdom couldn’t get enough Gulf of Maine northern shrimp this season, making it one of the company’s best seasons in nearly a decade.
But Jeff Holden, president and owner, says problems getting credit extended toward the end of the season nearly scuttled his export success.
“When we sell domestically, we advance a line of credit that is secured by our inventory or collateral based on receivables,” says Holden. “Overseas, though, it doesn’t work like that.”
Most banks don’t recognize inventory outside of their countries as collateral, says Holden, and his longtime bank, Maine Bank & Trust, is among them. That meant he couldn’t get the financing he needed to cover his export costs, in some cases waiting as many as 40 to 50 days to get paid and replenish his cash flow.
“It tightens you up drastically in cash,” says Holden, whose company employs about 200 and is one of the largest frozen seafood exporters in the state. “That’s a long time when it is difficult to finance it.”
His bank came up with a temporary solution to get him through the last month or so of the shrimp exporting season in March by tweaking advance rates on the inventory, as well as his accounts receivable. But Holden would like something more structured before December and his next export season.
To that end, he has been working with Maine Bank & Trust and the U.S. Small Business Administration for the last seven months to make it easier for the local bank to serve his company. But a solution has eluded them. Although Holden says he wants to remain true to the bank that has served him well since 1993, he might have to look elsewhere. (Maine Bank & Trust did not respond to requests for comment by press time.)
Shopping around for financing
“This has been ongoing for the last 18 months,” Alden Turner says of the financing woes of local exporters. He is an SBA senior area manager and Portland’s representative. He says he receives an average of five to 10 calls every week from owners of small- to mid-sized businesses who are having trouble lining up the credit they need to export products. Availability of credit for exports offered by Maine financial institutions is varied.
“It’s bank to bank. It’s not all creditors,” he says.
Some banks are not comfortable including the SBA in their credit mix, Turner says. Or they aren’t interested in learning of other resources available to help novice exporters, despite outreach by federal agencies trained to deliver that expertise. His advice to businesses that can’t get the credit they need from their banks: shop around.
John Joyce, regional manager with the Exports Solutions Group at the Office of International Trade in Boston, says some smaller banks are not as well versed as larger banks in helping commercial customers handle international trade.
“There’s no reason those banks need to lose their customers,” he says.
As long as SBA officials feel confident a company can fill orders and get paid, the SBA will guarantee 90% of the inventory for the banks that extend credit to those companies, says Joyce. It also allows a business to give a customer an extra 30 days to pay for their shipment. According to the SBA’s Export Working Capital Program, the agency guarantees repayment of up to $1.5 million or 90% of a loan amount, whichever is less. A loan can support a single transaction or multiple sales on a revolving basis.
Portland Shellfish’s Holden says the average value of one shipping container of his frozen shrimp is between $115,000 and $130,000. He never ships a container overseas unless he has a customer lined up first. Holden says he should be able to receive 70% to 80% advanced credit, which is as much as $104,000, from a bank to ship the shrimp overseas. If he did not have a customer lined up ahead of time, Holden says a bank would view the shrimp as inventory and extend him advanced credit of 50% of the shrimp’s value, about $65,000. When Maine Bank & Trust was unable to extend him advanced credit for each shipment, Holden says he had to finance the transactions himself.
Jeff Abramson, vice president of trade and finance for the federal Export-Import Bank of the United States in Washington, D.C., says it, too, wants to help small businesses and small banks bridge this credit gap. Like the SBA, the Export-Import Bank can guarantee up to 90% of a company’s inventory and receivables, and it can also offer buyer finance protection. If a foreign customer tells a U.S. business he wants to buy its products, but doesn’t have the money, Abramson says his agency can arrange a loan for the buyer to make sure the bank gets paid when the products are shipped.
Abramson says tools exist to help smaller banks get off the bench and get in the global trade game. He believes that when one of these institutions takes advantage of the federal programs and demonstrates real profitability, others will follow.
“If these small banks want to keep their customers, they’re going to have to step up,” he says.
To get the word out about these financing resources, the Maine International Trade Center has scheduled two “Essentials of Exporting” training sessions in Bangor and Presque Isle in May to train businesses and banks on the rules of engagement of international finance. Depending on interest, Turner says more could follow.
Big banks waiting in the wings
Chip Kelley, senior vice president and manager of commercial banking at KeyBank in Portland, sees a pretty simple solution for those small to medium-sized businesses that need financing help with overseas sales.
“It’s important to work with a financial partner who is experienced in foreign trade and foreign exchange and that’s not everybody here,” he says.
In some cases, Kelley says smaller banks can partner with larger banks to give customers needed services, but it can be difficult because it involves the sharing of collateral, inventory and receivables.
“How do you cut the baby in half?” Kelley says. “Oftentimes, the incumbent (bank) may be reluctant to give up something they already have.”
Besides KeyBank, Kelley says TD Bank, Bank of America and Citizens Bank, which has a commercial lending office in Portland, are well equipped with international finance expertise.
KeyBank has a full-time person who provides expertise with letters of credit, which can ensure payment from a new overseas client, as well as existing clients. It also has a full-time foreign exchange specialist who helps companies lock in pre-negotiated prices for products that will not change as currencies bounce up and down.
Companies that do not hedge prices sometimes make out if the exchange rates are favorable. But “it can be a double-edged sword and inevitably it will work against you,” says Kelley.
While the SBA tries to spread the word about its export resources, President Obama and U.S. Sen. Olympia Snowe are trying to give the federal agency even greater firepower. The president signed the National Export Initiative into law on March 11, which calls on the country to double its exports in the next five years, as a means to generate jobs. It also creates the Export Promotion Cabinet to take steps to increase accessibility of credit to small to mid-sized businesses.
The president also wants to pump $30 billion in repaid Troubled Asset Relief Program money into the SBA so it can make more loans to help small businesses export. Meanwhile, Snowe sponsored Senate bill 2862 to improve access to credit for small businesses that export by increasing the size of SBA loans and to ensure there are at least three export finance specialists in each regional SBA office. The bill was passed by the Small Business and Entrepreneurship Committee and is expected to go before the full Senate later this year.
The increased federal attention probably won’t help business owners like Holden soon enough, though. Each time he ships another container filled with tons of frozen shrimp, whole lobsters or crab to Boston where it is loaded onto a cargo ship and transported overseas, Holden says his cash flow is stretched to the max.
He wishes his bank could work something out with the feds that would allow him to remain a loyal customer. If not, he’ll have to consider other options.
“We wouldn’t put ourselves in a position where we would get potentially burned,” he says.
Bob Cook, Mainebiz staff reporter, can be reached at bcook@mainebiz.biz.
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