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November 6, 2008 

 Q&A: Midwest Regional Director Michael E. Howard of Export-Import Bank 6/17/2008
The mission of Going Global, which appears on MidwestBusiness.com on most Tuesdays, is to educate and inform Midwest technology companies on what local technology companies are doing internationally so other firms can learn from the successes of like-minded peers.

CHICAGO – Midwest regional director Michael E. Howard of Export-Import Bank (Exim) sat down with Michael Muth to discuss its benefits to importers and how it fills in the gaps.

Michael Muth: How does Exim help small exporters?
Michael Howard: We primarily assist small businesses by offering working capital guarantees and export insurance. The main objective is to take on international political and commercial risk. We want to sustain U.S. jobs. We can provide guarantees to lenders to provide working capital to produce orders for export sales.

We also encourage them to sell on good credit terms to credit-worthy customers. Midwest companies are conservative. They want cash on hand or letters of credit. It’s OK to extend credit to credit-worthy customers. It allows them to be more aggressive as a global player without taking on all the risk.

MM commentary: While Exim bank is relatively unknown to Chicago-area technology companies, it can be a big help.

MM: What gaps does Exim fill in trade financing?
MH: We provide the services that private-sector banks are unwilling and/or unable to provide profitably. Our job is not to compete with the private lenders and insurers. We do the very small, large and very risky transactions. Those who are very sophisticated don’t use us because the private organizations want that business.

For example, we encourage companies to sell into Latin America. It’s very expensive for banks to lend money or extend credit in Latin America and hold reserves on those funds. We take the risk out of it. Does someone want to take 60-, 90-, 120-, 180-day or one- or five-year terms in Latin America? Most of the banking system doesn’t want to do that.

How expensive is money there? Our usual foreign buyer is worthy of credit and has access to capital. By buying from the U.S. and using credit insurance or supplier cash flow, their funding is cheaper than their own internal borrowing.

MM commentary: So, what’s the lesson here? If your regular commercial bank can’t meet your export financing needs, contact Exim to see if they can fill in those gaps.

MM: What leasing options are available internationally?
MH: We’ve done very few leases because we have a relatively closed product that will finance the purchase of capital equipment over five years. We’ve rewritten it in the last 18 months. We’ve only done two or three since then. We’re not aggressively selling it now.

We approve the lease in the foreign country and then allow the seller to use that same lease without another review for a number of years. We’re looking for a few good examples we can repeat in the same marketplace. We have better products to solve that same need.

MM: What risks does Exim bank insure against?
MH: We insure businesses against foreign and political risks. We define those as the risk of war, revolution, etc. We also insure against order cancellation. We wholeheartedly encourage our clients to get significant non-refundable down payments to make sure their customers don’t cancel their orders. We don’t insure against product disputes.

MM commentary: Foreign and political risks are risks that exist only when doing business outside the U.S. This is important to insure against almost everywhere.

MM: How can Exim hedge against currency risks?
MH: Most of the companies we work with invoice and bill in dollars or euros. If you’re doing 60-day risk, don’t even bother. Sell in U.S. dollars and get paid in U.S. dollars. We do have the capability of doing short-term (up to 180 days) and multi-year financing in lots of different currencies. I don’t think we do much of it because it’s dominated by the U.S. dollar.

MM commentary: If you do bill in euros, consider financing with Exim.

MM: When should small exporters get Exim involved in their transactions?
MH: We want to get involved as early in the process as we can so we can advise our clients of the best way to proceed. While we are one small piece of the puzzle, we should always be in the toolbox. Small businesses should talk to us every two to three years even if they don’t use us.

As a businessperson, I have to ask myself: “My competition is selling on credit terms. How can I do that without the risk?” I start with asking how I get paid and then work backward. It starts with the country. Should we be talking about this sale? Do we know our options and risks?

There are lots of countries where the money isn’t there because the risk is too high. At the beginning, they should do some quick feelers to see if it looks, smells and feels right. We put some pricing on the table and then we’re off to the races to evaluate the foreign buyer. There are legally prohibited countries like Cuba, North Korea and Syria.

Take a look at this country limitation schedule. Some of our business is done with government agencies, large multi-national groups and small distributors and dealers. We underwrite all of those. Each has a different risk tolerance.

If you have a new airport going in, there’s usually a municipality, state or federal government behind it. The obligation is behind the government. That’s different from selling a bottling line to a manufacturing processor of fruit juices. Each is structured totally differently. More and more, we’re working directly with the foreign corporation.

MM: How automated are the processes required in working with Exim?
MH: You can now fill out all of our short- and medium-term financing forms online. While I wish I could say we’ve totally gotten rid of all paper, I don’t think the government will ever eliminate that option. People can still submit paper and someone has to input the data.

So who’s the best person to input your data? We’ve automated a number of the applications for exporter approval in the last 18 months. You can apply, get approvals and do a lot online. It depends on product categories. In working capital, we’ve delegated authority to the commercial banks and they tell us about it later. That’s better than automated.

That’s giving them the authority to commit us. On the insurance side, we’re fully automated. Then we have larger projects that are not online. They take a long time to put together. There are analyses and spreadsheets. You’ll never see that go totally online. There are too many dynamics and none of it is standard.

MM commentary: Techies should be comfortable filling out their forms online.

MM: What’s the benefit of working with Exim?
MH: We don’t normally have relationships with the companies. We’re an insurer or guarantor in the background.

They continue to work with their normal bank. We come in just to fill the gaps and then back away and allow the normal relationships to play. We only come back to pay a claim or solve a problem. The benefit is taking on the risk that the companies and banks won’t.

MM commentary: In other words, you can contact your bank to find out if they work with Exim to meet your international banking needs.

Michael Muth is managing director of GATA, an international business development consultancy that helps technology companies build international partnerships. He can be reached at muth@midwestbusiness.com.
Click here for Muth’s full biography.

Previous Columns in 2007:
Q&A: Intetics Managing Partner Alex Golod on Belarusian Economy (4/15/2008)
Q&A: Intetics Managing Partner Alex Golod on Protecting Intellectual Property (4/9/2008)
Q&A: Intetics Partner Alex Golod on Being a Jack of All Trades (3/31/2008)
Q&A: Motorola WiMAX Director Tom Mitoraj on Unstoppable Freight Train (11/26/2007)
Q&A: Motorola WiMAX Director Tom Mitoraj on Global WiMAX Differences (11/20/2007)
Q&A: Motorola WiMAX Director Tom Mitoraj on Widespread WiMAX Growth (11/12/2007)
Q&A: InterPro Translation CEO Ralph Strozza on Translation Tools, Costs (9/18/2007)
Q&A: InterPro Translation CEO Ralph Strozza on Globalization, Translation (9/11/2007)
Q&A: InterPro Translation CEO Ralph Strozza on Intercultural Translation Issues (8/7/2007)
Q&A: Madison Capital Partners CEO Larry W. Gies on Specific Country Issues (7/10/2007)
Q&A: Madison Capital Partners CEO Larry W. Gies Jr. on Cultural Differences (6/26/2007)
Q&A: Madison Capital Partners CEO Larry Gies on International Private Equity (6/11/2007)
Q&A: Scott H. Lang of S.H. Lang & Co. in Chicago on Foreign Deal Making (5/15/2007)
Q&A: Scott H. Lang of S.H. Lang & Co. in Chicago on Middle-Market M&A (5/8/2007)
Q&A: Scott H. Lang of S.H. Lang & Co. in Chicago on Middle-Market Firms (4/24/2007)
Q&A: George Filley of NAVTEQ in Chicago on Data Localization, Reach (3/27/2007)
Q&A: George Filley of NAVTEQ in Chicago on Partners, Personal Privacy (3/20/2007)
Q&A: George Filley of NAVTEQ in Chicago on Digital Mapping (3/7/2007)
Click for 2006 column archive.
Click for 2005 column archive.
Click for 2004 column archive.

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