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While the spotlight often falls on America's giant corporations, the U.S. Small Business Administration (SBA) reports a harsh reality. An astonishing 99.9% of businesses in the United States are actually small and medium-sized enterprises (SMEs).
With 33.2 million small businesses across America, there is no doubt that the heartbeat of the American economy resonates through small businesses.
Considering that 95% of the world's customers reside beyond the borders of the United States, trade provides tremendous opportunities for small businesses to thrive.
With this broad global audience in mind, the benefits of expanding into international markets are indisputable.
That's why SBA is committed to helping small businesses, including first-time exporters and those in underserved areas, navigate the complexities of international trade.
In this episode of Trade Finance Talk, TFG Deputy Editor Brian Kanup speaks with Claire Ehrman, SBA Acting Deputy Administrator, and Dan Pichet, SBA National Director of Trade Finance.
Together they dive into the world of U.S. small businesses, explore the challenges these companies face, and highlight the SBA's pivotal role in supporting U.S. small businesses both domestically and globally. .
Global Ventures, Local Support: SBA's Small Business Initiatives
Founded in 1953, the U.S. Small Business Administration (SBA) operates as an important government agency dedicated to mentoring entrepreneurs who want to start, build, and grow their businesses.
“SBA is dedicated to making the American dream of small business ownership a reality,” Ehman said.
The SBA has a national presence, with offices in every state, the District of Columbia, and various U.S. territories.
Operating at the cabinet level of the U.S. government, this agency provides resources and support to help businesses get started, achieve growth, and expand their market reach.
Additionally, the SBA continually evolves to meet the changing needs of the business environment and provides a wide range of services to small and medium-sized businesses.
This includes financing programs, joint initiatives with financial institutions, and dedicated support for small and medium-sized enterprises engaged in international trade.
“SBA lending programs operate in two general ways and provide guarantees to banks to help reduce downside risk,” Pichet said. Additionally, we work with over 2000 financial institutions across the country and categorize our programs into domestic and international portfolios. ”
Domestically, SBA responds to a variety of needs, including capital investment, real estate, business acquisitions, and growth capital.
For international ventures, the agency's prestigious lending program is designed to facilitate small businesses' access to capital through an extensive network of more than 2,000 commercial banks, credit unions, and community development financial institutions (CDFIs) .
“In FY23, SBA transformed its lending and investment programs, expanding its capital partners and providing nearly $50 billion in startup growth and recovery funds and surety bonds,” Ehman said. Ta.
Additionally, the Office of International Trade within the SBA focuses on helping small businesses expand into international markets through export-tailored grant programs, export counseling, and trade finance lending programs.
Mr. Ehman said, “We primarily work in the growth category for small and medium-sized businesses, helping them grow by expanding into international markets.”
SBA's multifaceted approach underscores the agency's commitment to promoting the success and growth of America's small businesses at home and abroad.
Supporting American Businesses: Comprehensive Small Business Financing
According to a report by the Asian Development Bank, the global trade finance gap has soared to a record $2.5 trillion in 2022, up from $1.7 trillion two years ago.
Small businesses are on the front lines as they face significant challenges to affordable financing.
The evaluation criteria used by banks, which focus on balance sheets and strict compliance requirements, inherently puts small businesses at a disadvantage compared to large companies, and small businesses in the United States are no exception. there is no.
Ehman said, “The Asian Development Bank has done a great job of highlighting this trade finance gap and its causes and impacts, and we've looked at the impact it has on American small businesses. Trade finance has a lot to offer. , trade finance is becoming more difficult for small and medium-sized businesses to access, with greater complexity, increased costs, and risks associated with compliance requirements.”
Therefore, the SBA plays a critical role in expanding access to capital for all small businesses and closing the financing gap for America's small businesses.
Ehrman pointed to the transformative potential of international trade for small and medium-sized businesses, citing a compelling example from a medical device manufacturer.
The company won a large multi-year contract from a foreign government, which required significant funding to scale up production and procure raw materials. Through SBA's Export Working Capital Program, this manufacturer not only obtained the necessary working capital and fulfilled its contract, but also expanded its global presence.
“For many small businesses, the lack of traditional trade finance is evident in the trade finance gap, limiting their ability to secure these types of opportunities,” he said. It’s important to spread the word about trade finance solutions.”
Additionally, the SBA is actively exploring strategies to increase the accessibility of financing for small businesses.
While traditional export facilities are typically installed in large projects due to their complexity, Ehrman emphasized the importance of extending financial support to small and medium-sized projects.
As Mr. Ehman highlighted, a recent SBA survey of U.S. small business exporters revealed that a significant number of small businesses derive less than 10% of their revenue from international trade, primarily You can see that the focus is domestic.
The current SBA support framework accommodates businesses that engage exclusively in exports with foreign buyers or businesses that operate solely in the domestic market.
However, recognizing the funding gap for businesses engaged in both domestic and international trade, the SBA is now exploring new avenues to provide capital to support these businesses.
“We are actively looking at ways we can leverage SBA's traditional programs to address trade finance gaps in the small business sector for companies doing business domestically and internationally,” he said. That’s where I am.”
From his perspective, Pichet emphasized the importance of scrutinizing how U.S. companies and small businesses enter international markets. To illustrate this point, he presented a case study featuring a clean technology manufacturer that designed a battery-powered generator to replace traditional diesel generators in fuel production.
The company's journey, supported by an SBA loan, illustrates the growth opportunities facilitated by customized export financing capabilities.
Pichet says, “When a company expands, especially in the case of new export operations, its operations are initially focused on the domestic market. Such a scenario requires a comprehensive solution that can meet diverse needs. .”
Driving growth through collaborative partnerships
There are more than 33 million small businesses in the United States, and the demand for resources exceeds the available supply.
That's why SBA values public-private partnerships as an integral part of its mission to empower small businesses and enhance access to international markets.
All SBA lending programs operate as public-private partnerships, leveraging an extensive network of more than 2,000 lenders to improve small businesses' access to international markets.
In FY23, SBA's portfolio reached $50 billion, demonstrating the strength of these partnerships.
Lender diversity is critical, from credit unions to community development financial institutions (CDFIs) to commercial banks.
Working with this wide range of financial institutions is key to effectively distributing funds to small businesses across the country.
In addition to loan financing programs, SBA actively participates in the State Trade Expansion Program (STEP), which fosters collaboration with states to support small businesses through grantmaking.
Proceeds from STEP grants can be used in a variety of ways, including promoting exhibition participation, translating websites to improve international e-commerce, and providing trade credit insurance support.
“We rely on private sector partnerships as a way to augment federal resources,” Ehman said.
These partnerships significantly contribute to capacity building through collaborative efforts with key agencies such as the Export-Import Bank of the United States (EXIM), the Export Credit Agency (ECA), and the Department of Commerce.
Pichet said, “These organizations bring a wealth of trade finance experience and structure that helps us understand the risks associated with international trade. From access to resources, this will go a long way in developing SBA lenders into financial institutions that can also support export financing.”
These strategic partnerships not only strengthen the capabilities of SBA and its lenders, but also facilitate a deeper understanding of international markets while mitigating the risks associated with global trade.
