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Though the spotlight often shines on America’s corporate giants, the U.S. Small Business Administration (SBA) reports a stark reality: an astounding 99.9% of businesses in the U.S. are, in fact, small businesses (SMEs).

With 33.2 million small businesses across America, there is no question that the heartbeat of the American economy resonates through its smaller enterprises.

Trade offers an immense opportunity for small businesses to thrive, considering that 95% of the world’s customers reside beyond U.S. borders. 

With this expansive global audience in mind, the advantages of venturing into the international market are indisputable. 

For this reason, the SBA is committed to supporting small businesses, including first-time exporters and those from underserved communities, in navigating the intricacies of international trade.

In this episode of Trade Finance Talks, Brian Canup, Assistant Editor at TFG spoke with Claire Ehmann, Acting Associate Administrator at the SBA, and Dan Pische, National Director of Trade Finance at the SBA. 

Together, they dive into the world of U.S. SMEs, exploring the challenges these businesses face, and shedding light on the pivotal role of the SBA in supporting the nation’s SMEs on their journey both domestically and globally.

Global Ventures, Local Support: SBA’s Commitment to SMEs

Established in 1953, the U.S. Small Business Administration (SBA) operates as a vital government agency dedicated to guiding entrepreneurs in pursuit of starting, building and growing their businesses. 

Ehmann said, “The SBA is dedicated to transforming the American dream of small business ownership into a reality.” 

With a nationwide presence, the SBA maintains offices in every state, the District of Columbia, and various American territories. 

Operating at the cabinet level in the U.S. government, the agency provides resources and support, enabling businesses to commence operations, achieve growth, and broaden their market reach.

Moreover, the SBA has continually evolved to meet the changing needs of the business landscape, offering a spectrum of services to small businesses. 

This includes financing programs, collaborative initiatives with financial institutions, and dedicated support for SMEs engaged in international trade. 

Pische said, “The SBA’s loan programs operate in two general ways, providing guarantees to banks to help them mitigate downside risk. Additionally, we collaborate with over 2000 lenders nationwide, categorising our programs into domestic and international portfolios.”

On the domestic front, the SBA supports diverse needs, including capital expenditures, real estate, business acquisitions, and growth capital. 

For international ventures, the agency’s renowned financing programs are designed to facilitate small businesses’ access to capital through an extensive network of over 2,000 commercial banks, credit unions, and community development financial institutions (CDFIs). 

Ehmann said, “In fiscal year 23, the SBA transformed its lending and investment programs, expanding our capital partners to deliver nearly $50 billion in startup growth and recovery capital, as well as surety bonds.”

In addition, the Office of International Trade within the SBA focuses on supporting SMEs in expanding into international markets through grants programs, export counselling, and trade finance loan programs tailored to exporting. 

Ehmann said, “We mostly work in the growth category for small businesses, helping SMEs grow by expanding into international markets.” 

The SBA’s multifaceted approach underscores its commitment to fostering the success and growth of U.S. small businesses both domestically and internationally.

Supporting American Businesses: Holistic SME Funding

The global trade finance gap surged to a record $2.5 trillion in 2022 from $1.7 trillion two years prior, as reported by the Asian Development Bank. 

Among those encountering significant challenges in accessing affordable financing, SMEs stand at the forefront. 

The evaluation metrics employed by banks, focusing on balance sheets and strict compliance requirements, inherently place SMEs at a disadvantage compared to larger firms—American SMEs being no exception. 

Ehmann said, “The Asian Development Bank has done remarkable work highlighting this trade finance gap and its causes and impacts, and we have observed its impact on American SMEs. Trade finance involves higher complexity, increased costs, and risks associated with compliance requirements, making it more challenging for small firms to access trade finance.”

Hence, the SBA plays a critical role in expanding access to capital for all small businesses and bridging the financing gap for American SMEs. 

Ehmann pointed out the transformative potential of international trade for small businesses, citing a compelling example of a medical device manufacturer. 

This company secured a substantial multi-year contract from a foreign government that required significant financing for production scaling and raw material procurement. Through the SBA’s export working capital program, the manufacturer obtained the necessary working capital, not only fulfilling the contract but also expanding its global presence. 

She said, “For many SMEs, the lack of traditional trade financing is evident in the trade finance gap, limiting their ability to secure these types of opportunities. That’s why it’s crucial to spread the word about SBA’s trade finance solutions, such as the export working capital program.”

Furthermore, the SBA is proactively exploring strategies to enhance the accessibility of funding for SMEs. 

While traditional export facilities are typically deployed for larger projects due to their complexity, Ehmann stressed the importance of extending financial support to smaller to medium-sized projects. 

A recent SBA study on U.S. small business exporters, as highlighted by Ehmann, revealed that a significant number of SMEs derive less than 10% of their revenue from international trade, indicating a predominantly domestic focus. 

The current SBA support framework caters to businesses exclusively involved in exporting with a foreign buyer or those operating solely in the domestic market. 

However, recognising a funding gap for businesses engaged in both domestic and international trade, the SBA is currently exploring new avenues of providing capital to support these businesses. 

She said, “We’re actively looking at ways that we can try to leverage the SBA’s traditional programs to address that trade finance gap in the small business space for businesses that are doing business both domestically and internationally.”

From his perspective, Pische underscored the importance of scrutinising how U.S. businesses and SMEs venture into the international markets. Illustrating this point, he presented a case study featuring a clean tech manufacturer that designed battery-operated generators, replacing traditional diesel ones in fuel production. 

The company’s journey, supported by an SBA loan, exemplifies the growth opportunities facilitated by tailored export finance facilities. 

Pische said, “For a company to expand, especially for new-to-export businesses, their operations are initially concentrated in domestic markets. In such scenarios, we require comprehensive solutions capable of meeting their diverse needs.” 

Fostering Growth through Collaborative Partnerships

With over 33 million small businesses in the U.S., the demand for resources surpasses the available supply. 

Consequently, the SBA places great emphasis on public-private partnerships as an integral part of its mission to empower SMEs and enhance their access to international markets.

All SBA loan programs operate as public-private partnerships, leveraging an extensive network of more than 2000 lenders to improve SMEs’ access to international markets. 

In fiscal year 23, the SBA’s portfolio reached $50 billion, a testament to the strength of these collaborations. 

The diversity of lenders, ranging from credit unions to Community Development Financial Institutions (CDFIs) and commercial banks, is crucial. 

Working with this broad spectrum of lenders is key to disseminating capital effectively to SMEs nationwide.

Beyond loan financing programs, the SBA actively engages in the State Trade Expansion Program (STEP), fostering collaborations with states to support SMEs through grant-making.

STEP grant proceeds can be used in many ways, including facilitating participation in trade shows, translating websites for improved international e-commerce, and providing support for trade credit insurance

Ehmann said, “We rely on our private-sector partnerships as a force multiplier for our federal resources.”

Through collaborative efforts with key entities such as the U.S. Export-Import Bank (EXIM), the U.S. Export Credit Agency (ECA), and the Department of Commerce, these partnerships significantly contribute to capacity building. 

Pische said, “These organisations bring a wealth of trade finance experience and structure that can help them understand the risk associated with international trade. From concentration currency risk to navigating international markets, and ultimately having access to valuable resources, can go a long way to developing SBA lenders into institutions that can also support export finance.” 

These strategic partnerships not only enhance the capabilities of the SBA and its lenders but also foster a deeper understanding of international markets while mitigating risks associated with global trade.