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While carving ski turns in the Argentinean powder of Las Leñas, pro skier-turned-entrepreneur Stephen Drake was inspired to create a new type of skis. Working with engineers from Utah’s aerospace industry, Drake developed the only pure pre-preg carbon fiber sandwich construction skis in the world and launched DPS Skis. Today, DPS ships skis to 13 countries on four continents worldwide.
Exporting to global markets would have been considered a challenge for a small business just 10 years ago. But thanks to a variety of factors—including technology such as the internet—almost any business can export today.
In 2012, Utah exports exceeded $19.1 billion. Nearly 2,900 companies in Utah export to foreign countries, and 88 percent of these businesses have fewer than 500 employees, according to the International Trade Administration. Exports support 4.9 percent of private-sector jobs and 17.9 percent of manufacturing jobs in Utah, according to World Trade Center Utah.
If you’re looking to enter the export arena, it’s important to consider several factors: How will I pay for startup costs to begin exporting? How will I pay for raw materials and manufacturing costs? How will I get paid?
Finance the Growth
Whether a company is new to exporting or a seasoned veteran, the U.S. Small Business Administration (SBA) has programs that help banks finance exports. An SBA Export Express guaranteed loan—up to $500,000—can be used for any export purpose, including market development, attending trade shows or trade missions, securing export licenses and building export inventory.
Since its launch in 2005, DPS has made global exporting a key component of its business plan. Its export expansion was funded by an SBA-guaranteed Export Express loan. The company’s high-performance products are not only unique among U.S. ski equipment markets, but also to international outdoor recreation markets.
The SBA’s Export Working Capital Guaranteed Loan Program is another way businesses can obtain financing for production activities up to $5 million. These types of loans may be secured before finalizing an export sale or contract to ensure that financing is in place after the order is won.
The SBA also offers the International Trade Guarantee Loan program to help expand your business to meet growth in the export market. Funds can be used for acquisition, construction, renovation or expansion. This financing is available up to $5 million.
There are a number of methods by which to get paid on your international sales. Ideally, you would receive payment in advance from the buyer prior to shipment, but that typically does not happen, especially if you are competing against other suppliers.
Letters of credit can be an alternative payment term if cash in advance isn’t practical. Under the arrangement, your buyer’s bank will issue a letter of credit in your favor. Essentially, the bank is guaranteeing payment to you, the seller, on behalf of the buyer if all conditions of the letter of credit are met.
Your bank can help with this process in a number of ways. At some financial institutions, clients are counseled on structuring the letter of credit to get the most protection possible. The bank then steps in as a collection agent to help secure payment from the buyer’s bank. In some cases the bank will confirm the letter of credit, taking on the risk of repayment from the buyer’s bank.
Letters of credit can enhance your ability to obtain financing, as most banks will not lend against foreign receivables. Securing insurance against non-payment of foreign receivables is another way to mitigate risk.
Another key consideration when exporting is whether to price your product in U.S. dollars or local currency. Pricing in local currency will often make the transaction easier for your buyers, making you more competitive and, in some cases, actually increasing your margins. Hedging tools are also available to remove the foreign exchange risks.
Use Local Resources
Whether you are a beginner or a seasoned exporter, it’s important to draw on the vast resources available in Utah. World Trade Center Utah is a great source for export assistance. In addition, many local financial institutions can help their clients achieve success with international trade endeavors.
David Clark is Zions Bank’s senior vice president and international banking manager.