SBA tries to build up local exports
Agency emphasizes trade in its loans to small businesses
Exporting loans are integral to Sadik Dalal’s business. In the past five years, they helped him export to more countries, tackle larger orders and double his workforce to 32 employees.
As the CEO of Axistrade, an industrial supplies distributor, Dalal attributes much of this growth to the U.S. Small Business Administration’s export loan programs.
“The loans were the determining factor in helping us continue to export internationally and to take on larger orders and larger customers,” he said last week.
Businesses in the Houston area are on track to receive twice as many SBA-guaranteed exporting loans during the fiscal year that ends Sept. 30. Thus far, businesses have received 14 loans totaling $13.3 million.
“Those 14 have happened during the slow part of the year,” said Tim Jeffcoat, district director for the administration’s Houston office.
He said there’s a spike in loans right before the fiscal year closes, so he’s optimistic SBA lenders in
Houston will issue 28 to 30 loans this year. These lenders issued 15 loans amounting to $23.6 million and 19 loans totaling $11 million in fiscal years 2015 and 2014, respectively.
“This is a way for us to champion what the federal government is doing to support small businesses,” Yolanda Garcia Olivarez, the Small Business Administration’s South Central Regional head, said last week as she toured Axistrade.
SBA exporting loans are written by banks but guaranteed by the federal government. If a borrower cannot repay the loan, the bank generally is on the hook for only 10 percent of that loan.
Since exporting is a major part of Houston’s economy, Jeffcoat said his office has been educating banks about the SBA exporting loans.
At the same time, low oil prices have had an impact on exports from the Houston-Galveston Customs District, which includes primarily the ports in Houston, Galveston, Texas City and Freeport as well as Bush Intercontinental and Sugar Land Regional airports.
Despite an uptick in the volume of goods and commodities, the value of exports dropped 16 percent to $110.2 billion last year from $131 billion in 2014, according to data that the Greater Houston Partnership interpreted from WISERTrade. This is primarily due to the fall in the price of crude oil, refined products and chemicals sold on the global market.
The small-business loans like- ly won’t turn around the drop in exporting value because they aren’t involved with those major export products, said Patrick Jankowski, senior vice president of research for the Greater Houston Partnership.
“It’s not going to move the needle that much on total goods moving through the region,” he said.
However, Jankowski agreed that SBA exporting loans can help create jobs as small and midsize businesses hire workers or increase hours of current employees to handle additional orders.
“Small and midsize companies do a lot of exporting, and they do play an important role,” added Niels Aalund, senior vice president of the West Gulf Maritime Association. As the overall volume of exports increased at the port, he assumes small-business exporting has increased, too.
Gilda Ramirez, Port of Houston Authority senior director of small-business development and maritime education, said the port has always worked with small businesses. But it has increased those efforts over the past two years as the Small Business Administration has put more emphasis on exporting.
The Port Authority has host- ed workshops with the SBA to provide information on exporting and importing. It also holds quarterly forums on doing business with the port and conducts one-on-one meetings with interested companies.
Both Jankowski and Jeffcoat said exporting can help offset a slowdown small businesses may be experiencing among Houston customers. It’s also a good way to diversify their revenue streams.
“This is a really good time to meet with one of the SBA lenders,” Jeffcoat said.
He said SBA loans generally have interest rates that are only 2.5 percent to 2.75 percent above the prime rate. The prime rate is the lowest rate a bank would consider loaning, and it’s usually given to its best customers.
Not everyone supports SBA exporting loans. Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University, said they give an unfair advantage to the sliver of small exporters that get them.
“It pretty much amounts to the government picking winners and losers,” she said.
The loans offer lower interest rates and better terms than the businesses would be able to get on their own or that other companies might get without the government guarantee, de Rugy said. This frees up money to reinvest in their businesses, put toward advertising or improve employee pay.
“Those who benefit from these special terms obviously get a leg up from those who don’t,” de Rugy said.
She said all businesses should have to prove their plans to banks as a good test to see if their business ideas or projects are plausible. If a loan is rejected, that means it’s too risky and the government shouldn’t back it.
“You should have to go through this market test to get more capital,” she said.
Jeffcoat said the governmentbacked loans don’t have lower approval standards, although they may be given to somewhat riskier businesses.
“If you aren’t creditworthy, then you won’t get SBA-guaranteed financing either,” he said.