By Larry Dreiling
Much has been made over the last few weeks over the reauthorization of the Export-Import Bank of the United States. Better known as Ex-Im Bank, it is an independent agency of the executive office of the President. The bank’s mission is to create and sustain U.S. jobs by financing sales of U.S. exports to international buyers.
During the reauthorization debate, a number of members of Congress—practically all Democrats and a large number of Republicans—have said this independent agency is necessary to help promote U.S. exports. The more U.S. exports, they say, the more jobs will be created and the better the economy will perform.
A number of interest groups on both sides of the aisle want it to be shut down, labeling the bank as “crony capitalism.” Far-left liberals say it too much serves the needs of big business, while tea party conservatives say it interferes with the private flow of capital.
Perhaps the reason for much of the hand-wringing is that the biggest client for Ex-Im Bank is Boeing Co., which sells jet aircraft around the world and competes with Airbus Group, which receives subsidies from its European government partners.
Supporters of Ex-Im Bank say a shutdown would be devastating to companies like Boeing, while opponents say it would be a kick-start of free-market capitalism that the economy needs to stand on its own.
Adding fuel to the fire: Ex-Im Bank’s inspector general currently is investigating charges into whether employees have accepted kickbacks and gifts in exchange for helping at least one firm secure financing.
The bank’s charter expires Sept. 30. Those who want the bank to stay in business, such as Rep. John Campbell, R-CA, chairman of the House Financial Services Subcommittee on Monetary Policy and Trade, are scrambling to shape a compromise and say they want to fix problems critics have with the bank, not hurt prospects for more American jobs.
Some of the fixes Campbell wants include ensuring proof that borrowers first sought private financing so the bank remains a lender of last resort, reducing overall lending limits while extending lending sub-limits, and allowing risk sharing through re-insurance.
A little history might be in order to set up what some say could be a back to the future approach for the agency.
Ex-Im Bank was founded in 1934 by President Franklin Roosevelt, primarily as a way of expanding the U.S. economy still floundering in the Great Depression. Initial loans were made for sales of commodities to the Soviet Union and to a still-democratic Cuba.
Today, the mission of Ex-Im Bank is to fill export-financing gaps through its loan, guarantee, and insurance programs when the private sector is unable or unwilling to do so. At the same time, private sector lenders are Ex-Im Bank’s partners.
The bank supported over $35 billion in direct export financing in fiscal year 2012. About 98 percent of Ex-Im Bank’s transactions involved commercial banks during fiscal year 2013.
Still, Ex-Im Bank claims its primary mission is to offer certainty and protection for small business exporters to enter new markets, expand and create jobs. A bank news release says it has financed more small business exports in the last five years than its previous 11 years combined.
In fiscal year 2013, nearly 90 percent of Ex-Im Bank’s transactions—a record-high 3,413—were for American small businesses.
A part of the small business sector Ex-Im Bank supporters want to attract is farm and agricultural businesses seeking to expand overseas. There are firms devoted to finding trade financing solutions to such underserved markets as farmers and ranchers who produce niche and identity preserved products that are sold regionally, but could expand to international sales if they just knew where to turn for help.
Just as it did upon its founding, Ex-Im Bank now support the sale of agricultural commodities and consumables, such as grain and soil additives, through the short-term insurance program, while assistance is available for the export of livestock through one of the bank’s short or medium-term products.
U.S. manufacturers and suppliers of new and used agricultural equipment have used medium-term financing extensively. The range of equipment benefitting from Ex-Im Bank’s support has ranged from small items such as disc harrows to more complex machinery such as seeders and combines.
Beyond the sale of equipment and commodities, Ex-Im Bank is also able to assist U.S. exporters and suppliers with the financing for agricultural projects. Examples of projects supported include the export of greenhouses to individual growers to the development of large-scale integrated meat processing facilities.
Now, at least one state wants to help even smaller businesses take advantage of Ex-Im Bank’s capabilities.
Last year, Colorado state Rep. Tracy Kraft-Tharp, D-Westminster, vice chairman of the House Business Committee, co-sponsored legislation creating the Advanced Industries Export Accelerator Program, managed through the Colorado Office of Economic Development and International Trade.
This newly created state program was designed to tap into Ex-Im Bank. Earlier this year, John McAdams, recently retired vice chairman and chief operating officer of the bank, helped establish ExWorks Capital, Inc., designed specifically to help small to medium-sized businesses, such as niche agricultural marketers, gain access to the capital needed to export their products.
McAdams was a part of Ex-Im Bank’s senior management for more than 10 years, coming from Bank of America, where he held a number of executive management positions in Washington, D.C., and Chicago, including responsibilities for trade finance, corporate banking in the Midwest and New England markets, and oversight of the Asia-Pacific region. His last position at Bank of America was president of Private Bank for the mid-Atlantic region.
ExWorks Capital is a young company, McAdams said, but is loaded with experience in export capital development.
“Agribusiness is something Ex-Im Bank has been involved with for many, many years,” McAdams said, “but we’re finding that large banks have an unwritten minimum threshold. They’re more than willing to do a $100 million deal, but a $2 million deal isn’t going to see the light of day.
“We are interested in working with small and medium-sized enterprises. We’ll underwrite them, give them an Ex-Im Bank guarantee, and sell the note to firms that work with Ex-Im Bank.”
Even small banks don’t want to handle firms dipping their toes into first-time exporting. They’d rather build relationships, McAdams said.
“Say you have a farmer who would like to try to sell a specific product they raise. They’re used to dealing with their local bank that doesn’t know how to cover a loan like that. Conversely, big banks don’t want to deal with them because they’re too small. The farmer can come to us.”
The local agent for ExWorks Capital is Vern Tharp, the husband of Kraft-Tharp. Besides Colorado, Tharp also represents the firm for clients in Kansas and Nebraska.
Tharp admits Ex-Im Bank doesn’t seem user-friendly to a small entrepreneurial agricultural producer.
“For the small business person looking for that first export opportunity, it’s daunting enough just to market a product,” Tharp said. “Ex-Im Bank loans work a lot like a Small Business Administration loan, in that you need a sponsoring lender, especially for these foreign exchanges. We have enough people to help the niche marketer navigate this.
“Niches mean premiums to the producer. We’re interested in furthering exports from commodities like, say, millet. It’s a big crop to eastern Colorado, not just for traditional birdseed but now, because of the rise of gluten-free demand, in human diets.”
Identity preserved products, especially for specific oilseeds, meats and other items, also don’t have enough critical mass to be attractive to large export players.
“Discerning customers want specific products. Financing can stitch together a way for producers to sell products to those customers,” Tharp said. “It’s our job to help finance the transactions.”
Most producers don’t have the capability of knowing where to begin an expansion of a niche product they grow to global customers. Tharp thinks he can help producers get that start.
“Smaller farmers and ranchers sometimes have difficulty finding a wide variety of buyers for their production. This tends to limit their profits. The fact is that 95 percent of the world’s customers are outside the United States,” Tharp said.
“ExWorks Capital wants to help smaller farmers and ranchers finance their path so that the whole world is their potential customers. This is especially true for niche and specialty products.”