MONEY MAKES THE WORLD GO
MONEY MAKES THE WORLD GO ROUND: HOW LUMBER EXPORTERS CAN ACCESS FUNDS By James Burrows Businesses often need money to make money. Accessing funds for domestic sales can be a challenge, and it becomes even more difficult when a U.S. lumber company has international sales. Commercial lenders do not always have the capacity or willingness to provide loans for high-risk markets or transactions, hindering current sales and impeding future ones. As a result, many U.S. lumber companies are cautious when it comes to exporting. Medium-size and larger companies expanding globally often rely on asset-based lending to finance their operations. By borrowing against their inventory and accounts receivable, businesses are able to accelerate their cash flows and fulfill orders. Unfortunately, small companies do not have this advantage. They face obstacles when it comes to asset-based loans. Lenders can be hesitant to allow small lumber businesses to borrow against their export-related assets, making accessing working capital difficult. As a result, these smaller businesses tend to be cautious when entering international markets and growing sales. Fortunately, the Export-Import Bank of the United States (EXIM) can help companies access vital funds with working capital loan guarantees and export credit insurance. Obtaining Working Capital With EXIM’s working capital loan guarantee, companies can obtain a line of credit from a lender to support their international sales. The guarantee can unleash the funds necessary to help companies pay for materials, equipment, supplies, labor, and other inputs needed to fulfill orders; post standby letters of credit to serve as bid bonds, performance bonds, or payment guarantees; and purchase finished products for export. With EXIM’s 90 percent guarantee, the lenders’ presumed risk in offering export working capital lines of credit goes away. Borrowers then have greater access to funds as the advance rates for inventory and accounts receivable go up dramatically from a typical asset-based line of credit (up to 75 percent for inventory and 90 percent for receivables). Frank Miller Lumber in Union City, Indiana, is a sawmill operation specializing in the manufacture of quartersawn Hardwood lumber with the bulk of its production in White and Red Oak. For the past two years, this family-run company has obtained a line of credit from the Bank of Montreal. The lender is protected against nonpayment by EXIM’s working capital loan guarantee while Frank Miller Lumber is using the funds to fulfill its orders and grow its international sales. Assigning Receivables Businesses cannot operate if customers do not pay their 28 JUNE 2020 n NATIONAL HARDWOOD MAGAZINE
Frank Miller Lumber in Union City, Indiana, is a sawmill operation specializing in the manufacture of quartersawn Hardwood lumber with the bulk of its production in White and Red Oak. For the past two years, this family-run company has obtained a line of credit from the Bank of Montreal. The lender is protected against nonpayment by EXIM’s working capital loan guarantee while Frank Miller Lumber is using the funds to fulfill its orders and grow its international sales. bills, and if foreign buyers don’t pay, there is little recourse for the seller. The financial hit can sometimes be substantial. U.S. companies need certainty and protection to tackle new markets, expand sales, and create jobs. EXIM’s Export Credit Insurance reduces the risk of nonpayment generated by international customers. Should a buyer not pay the invoice due to commercial or political risk, the agency will cover up to 95 percent of the sale. In recent years, more than 90 percent of EXIM’s transactions have directly supported American small businesses. In addition to mitigating the risk of nonpayment, EXIM’s insurance empowers U.S. businesses to negotiate open account credit terms with foreign buyers up front, which is a powerful marketing tool and can be the competitive edge that wins deals. Requiring cash in advance from foreign buyers tends to limit sales opportunities. With EXIM’s insurance, U.S. lumber businesses can increase their global competitiveness by offering open account credit terms up to 180 days. Another important benefit of EXIM’s export credit insurance policy is funding. The insurance enhances a U.S. company’s cash flow by insuring its foreign accounts receivable, making lenders more likely to advance U.S. companies a loan. By securing its foreign accounts receivable with EX- IM’s export credit insurance, a company can get up to 90 cents on the dollar advanced to them shortly after invoicing the buyer. With EXIM support, your company can also access vital funds to grow its international lumber sales. If you have any questions, please contact Elizabeth.Thomas@exim.gov or call 202-565-3488. n (Editor’s Note: James Burrows, author of this article, is EXIM’s senior vice president for the Office of Small Business. Burrows has more than 30 years of professional experience in both the public and private sectors of the financial services industry, including commercial banking, retail banking, and investment banking. Burrows joined EXIM as the vice president of small business in October 2012 James Burrows and was promoted to senior vice president in 2013. Burrows also has held management positions at both large and regional commercial banks in the United States.) JUNE 2020 n NATIONAL HARDWOOD MAGAZINE 29
