Illinois takes lead in state export funding
Chicago — For some time now, cities and states have been encouraging businesses in their regions to develop foreign markets. Now, led by Illinois, states are moving into the actual financing of exports. Since last summer, small to medium-size businesses in Illinois have been able to receive financial and administrative assistance from the Illinois Export Development Authority. The authority has lent more than $7 million so far to companies that otherwise would have been unable to secure financial assistance for developing export sales.
The authority started with a pool of $15 million, raised by the sale of a special type of export development revenue bond. It has legislative authority to go to the financial markets and sell up to $100 million in bonds if necessary.
Small companies contemplating international trade usually face formidable obstacles, says the authority's executive director, John Kerwitz. Most local banks, for instance, will not finance international trade transactions. Those that do usually require loans on the order of $1 million. And small companies are often discouraged by the complexities of the export business - such as analyzing foreign markets and obstaining licenses and credit reports.
The Illinois Export Development Authority lends up to 90 percent of the gross invoice value of the export transaction; the rest is lent by a commercial lender.
If a potential exporter seeks to export $100,000 of commodities, he can, if he qualifies, expect to obtain $81,000 from the authority and $9,000 from a local bank. The exporter has a 10 percent stake, but his profit margin usually covers this, so he needs little up-front cash.
Involving commercial banks is crucial to the plan's success, Mr. Kerwitz says. Both the Illinois authority and the bank's funds are insured against loss and political risk by the Export-Import Bank of the United States.
Alfred C. Holden, an associate professor of marketing at New York University, noted in a recent review of the Illinois program that ``banks now have a virtually riskless mechanism to provide for their customers' external financial needs, typically for working capital or for meeting importer demands for credit.''
Texas, Oklahoma, Nevada, Michigan, West Virginia, and Tennessee are drafting legislation to create similar authorities, while a few other states are examining the idea, Kerwitz says. At least 19 banks have been approved by the Illinois authority to date, and 27 others have applied.
By drawing into the program a number of banks that have little familiarity with export lending requirements - while at the same time encouraging potential exporters to take advantage of the authority's expertise in coordinating and performing key support tasks - officials hope to set in motion a ripple effect that will extend beyond the limits of the program as initially conceived.
Kerwitz says potential exporters, attracted toward the provisions of the export authority but unable to qualify, may seek out other channels to meet international trade requirements.
And as banks become more familiar with export financing, some may be encouraged to offer loans greater than the current 10 percent.