Small business credit foreign receivables

Board Topic: Small Business credit $200 thousand
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Small Business credit $200 thousand

Posted by: J. Suarez Apr 12 2004, 11:25 AM
My business is to sell pieces of machinery to Mexico, Guatemala and Honduras but I have problems obtaining financing from a Bank. When I speaks with my banker said me that because the business sells to foreigner then it do not qualifi for a line of credit.

Business is 13 month old. I am making sales of almost million of dollars. Business needs 200 thousand in credit but this to me has become impossible.

Do you have some recommendation?

Posted by: loanuniverse Apr 12 2004, 03:19 PM
J. Suarez:

I know that for a small business owner it might seem as if banks want nothing to do with them in terms of financing. In your case, this might be compounded by the fact that you have barely a year of operations. You have to look at it from the point of view of a lender. Risk aversion is the cornerstone of good credit and this is present at variable levels in all of the types of commercial lenders out there. In my opinion “although I might be a little biased”, commercial banks are the cheapest source of loan funding for businesses, which makes your choice of talking to your banker a good one.

In your position, I would sit down and make a list of my strengths and weaknesses, by trying to put yourself in the shoes of a commercial loan officer. With the information provided, I could already point out a couple of matters that would need to be addressed.

Only one year of operations. This is not good, but it might just be enough to get you past the dreaded “startup classification”. I would provide not only the financials for the year that ended in December “assuming that your fiscal year is in December”, but also an interim financial statement for the first three months of 2004. In addition, I would do a company prepared projection showing the sales and expenses that you expect the company will incur during 2004. I know that this might be a bit complicated if you do not have a couple of accounting courses under your belt, but essentially you are looking to show the following:

- Increased revenue for this year preferable, but try to keep the projections honest since the analyst would question a very high percentage increase if you can not back up the increase with some kind of sensible explanation. Do you have plans to sell to another market? Do you have plans to approach other potential customers within the three countries that you mentioned?

- Expenses in your projection have to be inline with the expenses that you incurred during 2003. In addition, they also have to be inline with similar expenses shown by other companies in your industry. For example, do not expect the lender to believe that you can hire someone to work for you for $10,000 a year.

- It would be a good idea to reflect the financing in the projections. This way you can show that the expected cash flow will be able to repay the loan and at the same time allow you to go after some opportunities that might be missed if you did not have access to the funding.

Foreign receivables are riskier than domestic. This is the one thing that is going to make it hard to find someone to finance you. In your place, I would look for something to mitigate this. Fortunately, the U.S. Government has a couple of agencies that help exporters get financing .

I think that the best place for you to start would be in the Export-Import Bank of the United States. Their website is located at EximBank of the US. There you can read up on their insurance products that will pretty much eliminate the risk of the foreign receivables to the lender.

Holding an Exim-Bank export credit insurance policy will allow you to get preferential financing. The foreign receivables insured by the U.S. Governement are more attractive than uninsured receivables.

There is a lot more information that needs to be presented to a commercial lender in order to make your business a good candidate. There are a few pages in this website that talk about what you need to show. Off the top of my head, you need substantial equity, knowledge and experience in the industry, but most importantly, you need to show ability to repay the loan.

I hope this gives you some guidance and help.
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