Small Businesses Go Global

Small-business owners are starting to think globally, and banks and the federal government are implementing tools to make it easier for these companies to take advantage of broader …

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Small-business owners are starting to think globally, and banks and the federal government are implementing tools to make it easier for these companies to take advantage of broader target markets. The 2010 Jobs Act gave the Small Business Association latitude to approve more and larger export-related loans, while banks such as HSBC have created programs like Business Without Borders that help small businesses expand into international markets. The U.S. set an export record of $178 billion in July according to the Bureau of Economic Analysis, with more small businesses contributing to those figures. Experts say small-business owners must know their team and the product market, understand the revenue stream and exchange rates, and ensure they can secure financing if needed when entering into the global market. For more on this continue reading the following article from The Street.

Go west, young business. Or east, south or north.

There is wide demand for American-made products and services outside the U.S., market observers say, and one way to boost jobs is by encouraging small companies to export — especially as the Internet has opened the door to use lower pricing to claim some of corporations’ international market share.

Small businesses struggling with growth and sales in the still sluggish U.S. economy may also want to diversify their revenue stream.

"Companies used to believe they could survive just on the U.S. market. I think a lot of companies are really questioning that," says John Hamm, CEO of Accept, a software company specializing in new product development and product portfolio management.

"The barriers to expanding from a cost standpoint are as low as ever," Hamm adds. "[Businesses] immediately have access to a much larger group of potential customers."

Facilitating small-business exports of goods and services is a top priority for the Small Business Administration and Export-Import Bank of the United States, which are following Obama administration goals to double exports by 2014.

The U.S. exported a total of $178 billion in goods and services in July — an all-time high, according to data from the Bureau of Economic Analysis as cited by the Export-Import Bank.

In the Jobs Act signed into law in September 2010, President Barack Obama allowed for the SBA to increase its ability to provide export-related financing by raising SBA 7(a) loan limits to $5 million from $2 million on export-related loans.

The law made the SBA Export Express loan permanent, with a 90% guarantee for loans up to $350,000 and 75% for loans between $350,000 and $500,000, according to the SBA. It also provides three-year state grants of up to $90 million to help small-businesses owners grow the exporting side of their businesses.

In early August, the Export-Import Bank said it had hit a record $24.5 billion for export-related loan authorizations. The bank’s financing supports more than $31.5 billion of export sales and 213,000 U.S. jobs, including 2,548 small-business export jobs. 

Iit was a $58 million loan authorization to a small business, Royal Equipment of Conroe, Texas, that helped the bank exceed its record, it said.

According to the release, the 25-employee company provides equipment and services to remanufacture 22 off-highway mining trucks for the Australia’s Downer EDI Mining — a sale that is the largest in Royal Equipment’s history.

The bank has plans to approve $30 billion in total small-business transactions. (As of Sept. 1, transactions totaled $13.2 billion.)

Top export markets for U.S. goods, as measured by the largest annualized increase in purchases by the Export-Import Bank, were:

  • Turkey (51%)
  • Panama (36.3%)
  • South Africa (36.1%)
  • Argentina (35.1%)
  • Peru (33.8%)
  • Brazil (30.2%)
  • Thailand (29%)
  • Hong Kong (28.8%)
  • Taiwan (28.5%)
  • Egypt (26.8%)

Still, exporting is not for everyone. A pizza shop on Long Island is not about to start selling their product internationally.

Smaller companies with annual revenue between $3 million and $50 million are typically in good position to expand into exporting, says Mark Luppi, head of business banking at HSBC Bank USA, a subsidiary of HSBC(HBC). (The international company also works with midsized firms and large corporations.)

"They’ve got their operation up and running and are looking to grow it to another level," Luppi says of businesses at that size. "From an industry perspective it runs the gamut."

"The key here is to do your homework. You really need to think about: ‘How am I going to get paid? How do I make sure those dollars are really here before I send that product? Do I understand the trade rules of a specific country? Things like that are crucially important," Luppi says. "It’s helpful to work with a bank that has the expertise that can walk you through the details of that and make the process much simpler for you."

HSBC launched Business Without Borders on Monday to help small businesses expand to international markets with news and tools such as the Global Opportunity Tool, which allows users to identify prospects for expansion by specific countries.

"The tool can help identify that and where they have needs for your particular product or service," Luppi says.

Expanding internationally can put a small business on "equal footing with these larger corporations," Luppi says. "Small businesses can also be more nimble and cost effective in providing services overseas. It really creates a more level playing field in the international space."

It’s also easy for a small company to fail if it expands too far or to a market that has no demand," Hamm notes.

"Small companies need to have a clear plan and a really economic justification for going global. It is not as easy as selling in this country. It is not as easy as shipping in this country. And you better have something special to offer another country that for the most part that marketplace can’t acquire locally," Hamm says.

This article was republished with permission from The Street.

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