New California Export Finance Program Planned
Initiative will help small and medium sized California companies
SANTA CRUZ - 10/21/04 - A new trade finance initiative is being crafted that will provide California-based small and medium sized companies (SMEs), their buyers, suppliers, and partners worldwide with much-needed pre-export capital, and trade finance consulting services.
Dubbed TradePort Export Finance Online, or TEFO, the program will create a managed financial network of banks, lenders and brokers focused on the burgeoning SME market that combines the expertise and capabilities of a variety of public and private sector entities including TradePort, the statewide CalTrade Coalition, several banks and lenders, the US Department of Commerce, the US Export-Import Bank (EXIM), and the US Small Business Administration (SBA).
TEFO is scheduled for launch next January.
"Large multinational banks are generally thought have the most experience in trade finance, but, frequently, their services are reserved for major clients with transaction minimums of $1 millon or more," said Jim Faith of TradePort, manager of the new program.
"These banks are less interested in working with SMEs because of smaller deal size and volumes accompanied by greater risk," he said. "In fact, small importers and exporters often present a business profile that creates obstacles to financing. Even SMEs with large trade deals are not attractive to larger banks due to risk and credit issues such as loan concentration, debt-earnings ratio restrictions or insufficient collateral."
SMEs, said Faith, "often need direct, customized assistance in taking their first steps into global markets, or in expanding the number of markets in which they trade."
TEFO's mission, he added, "will be to provide those SMEs with access to affordable trade finance and credit, which is considered the key to the growth and health of a company's trade capacity."
The new program will assist exporters and importers in finding and negotiating better deals on their trade financing, and provide loan counseling and access to pre-shipment working capital and transaction financing from $10,000 to $10 million.
In addition, TEFO will also offer services covering letters of credit, factoring, and financing for purchase orders, medium-term foreign buyers, suppliers, and forfeits.
Approximately 40,000 California-based companies exported their products and services in 2003. Some 94% of those companies were SMEs with less than 500 employees accounting for 40% of the state's total overseas sales during the year.
In fact, more than 85% of all California exporters were small firms with less than 100 workers.
In the past, SMEs turned to the California Export Finance Office (CEFO) for their specialized financing needs. CEFO was a state-funded program managed out of Sacramento by the Technology, Trade and Commerce Agency (TTCA).
CEFO was originally created to finance export sales by providing working capital loan guarantees to financial institutions on behalf of California SMEs and worked in partnership with the SBA and the EXIM Bank to co-guarantee loans used to finance the purchase of materials, services and labor to fulfill an export sales order or contract.
Last January 1, however, all of California's international trade and investment programs, including CEFO, were defunded by the Legislature as part of cost-cutting measures enacted in the 2003-04 State Budget Act.
"TEFO and its partners will fill the void left by the closing of the CEFO program," said Faith.
California exporters and importers will be able to utlize the TEFO website - www.tefo.org - to research their trade finance options, with additional tutorials available on the TradePort website - www.tradeport.org.
TradePort is an Internet portal serving as a "clearinghouse" of information for a growing network of trade organizations, economic development agencies, and other groups assisting California's international business community.
The site is a jointly operated by the San Francisco-based Bay Area Economic Forum and the Los Angeles Area Chamber of Commerce, and is managed by the Monterey Bay International Trade Association (MBITA).
According to Faith, who will manage the TEFO program out of the MBITA office in Santa Cruz, users will be able to submit their contact information and financial requirements via an online form that will be reviewed by the TEFO staff with follow-up for follow-up, qualification, and consultation.
"More and more of this process will be automated over time and as funding becomes available," said Faith, adding that, ultimately, TEFO will provide "a seamless, end-to-end solution for our clients' financial supply chain."
The TEFO pre-export working capital component will be based on loans against documentary letters of credit (L/C) for export transactions only and is provided to the beneficiaries of an L/C or the beneficiary's suppliers or vendors.
This financing will be transactional in nature "without traditional collateral requirements," Faith said, while qualified California exporters may receive loans to extend post-shipment payment terms to "credit-worthy" foreign buyers.
At the same time, the credits arranged through the program could be used to finance the purchase of materials, services and labor to fulfill export sales orders and contracts.
TEFO's loan counseling will be provided free of charge, and neither the service provider nor the lender will increase their respective fees to cover these costs, he said.
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