What Is an Export Capital Loan, and How Can It Help Grow Your Business?

There comes a time when a small business owner recognizes the need to expand operations into the global market. However, expansion can be expensive, and not all entrepreneurs have enough money sitting around to make their dream a reality. That's where the Small Business Administration (SBA) can help. The SBA offers to guarantee loans, including one called the Export Working Capital Program (EWCP). Here, we break down how the EWCP works, who's eligible, and how it can take your business to the next level.

At a glance

EWCP loans are for businesses that can generate foreign sales but need additional working capital to make it happen. If you have a solid plan in place but don't have the funds to make it a reality, an EWCP loan can help bridge the gap.

How it works

A business owner visits a local SBA-approved bank. Unlike a personal loan, the loan they apply for is guaranteed by the SBA, meaning the SBA will pay 90% of the loan back if the business owner fails to make payments.

In addition to SBA Form 1920, the business owner will supply information as requested by the lender. The interest rate is negotiated by lender and borrower, but cannot exceed the maximum set forth by the SBA. In other words, the SBA limits the rate a small business owner can be charged, thereby helping control their costs.

The business owner needs to have "skin in the game" by providing collateral. Collateral consists of any business inventory related to exports and, if the borrower owns 20% or more of the business, a personal guarantee must be made.

In most cases, it's the SBA that decides whether the loan is granted, based on the documentation gathered. If the loan is approved, loan proceeds are deposited into the business's checking account within five to 10 business days.

If the loan is not approved, the SBA can work with the business owner to come up with other financing options.

One important note about the EWCP: An EWCP loan is typically geared toward a specific exporting goal or series of specific goals. Unless extended by the SBA, the repayment term is 12 months for both a single-transaction loan and revolving loan. A business owner must have a clear picture of how the money will be spent and how long it will take to realize a profit.

How EWCP loans can be used

There are two primary factors that go into approved uses of how an EWCP loan can be used. The first is that funds must be used to further a business's export efforts. The second is that it must be used in such a way as to be repayable in one year (unless extended by the lender). Here are some of the ways businesses make the most of an EWCP loan:

• Covering the costs associated with manufacturing exported goods
• Buying goods and services for export
• Paying for standby letters of credit
• Financing foreign accounts receivable
• Paying to have communication such as project proposals, emails, and receipts translated into a foreign language

How to apply

The application process begins through the SBA. To be eligible, a business must have been in operation for at least 12 months and the Export Management or Export Trading Company must take title to goods being exported.

As business owners well know, sometimes having a good business idea is not enough. They need the financial resources to bring those ideas to fruition. In some cases, the EWCP provides the perfect solution.