October 28, 2010
A new report unveiled last week belies the recent assertion that U.S. small and mid-sized businesses generally have as much access to credit as they need.
The Federal Reserve Bank of New York's report, "Access to Credit: Poll Evidence from Small Businesses," found that only about half of the 426 respondents from small businesses in the Northeast that recently applied for credit were approved. Moreover, the vast majority of those respondents who did receive credit were not granted the full amount they were seeking from lending institutions. The study notes even many businesses with documented borrowing success in the recent past were denied access to credit.
The New York Fed's poll asked the following key questions on credit-seeking behavior, among others:
- Did you apply for a new business line of credit?: 116 responded "Yes," of which 73% were denied or received no answer.
- Did you apply for a new small-business credit card?: 108 said "Yes," of which 61% were denied or received no answer.
- Did you apply for an extension of an existing business line of credit?: 88 said "Yes," of which 67% were denied or received no answer.
- Did you apply for financing for a vehicle or equipment?: 81 said "Yes," of which 63% received approval (by far the highest positive tally in the study).
- Did you apply for a business loan?: 81 said "Yes," of which 80% were denied or received no answer.
Firms with significant longevity, a minimum of five years, and the likelihood to generate positive sales/revenues growth in the near-term fared much better than their counterparts in garnering credit, the Fed noted. The study admitted that a large part of the problem stemmed from somewhat weakened applicant quality and negative perceptions about the general economy, both of which are tied to the anemic rebound from the crippling recession.
The study's findings fly in the face of previous and widespread anecdotal findings from around the nation that business lending was down more because of a poor demand from smaller companies than because of rejections. Many lenders and industry experts had essentially decried, "There's plenty of credit available out there." The New York Fed contended this study gave its researchers and officials a chance to actually hear directly from those struggling to obtain needed credit.
"Until now, we've only heard anecdotally about difficulties for regional small business in obtaining credit without any numbers to confirm this," said Kausar Hamdani, senior vice president and community affairs officer at the New York Fed.
Brian Shappell, NACM staff writer
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The Obama Administration's National Export Initiative (NEI) has attempted to galvanize businesses large and small into selling more and more into developing markets. To make this possible, the administration and the president's Export Council Subcommittee on Export Administration have strived to eliminate trade barriers and shore up any potential risks, but for many businesses these steps haven't been enough.
Companies looking to take advantage of the NEI's opportunities, while protecting their bottom line, should look to letters of credit (LCs) to help them make safe and effective international sales. Though the intricacies of LCs have kept many potential users from leveraging them to increase their company's exports, an in-depth training session goes a long way toward making these items easier to understand, and there's no better training session than NACM's upcoming teleconference "Export LCs: The Nitty-gritty," led by Danielle Austin, director of LC Training & Advisory Services at Export Trade Associates.
"With the new export initiatives, it's the perfect time to learn more about export letters of credit," said Austin, who specializes in export letters of credit and provides LC review, workshops, employee in-house training and LC management.
Among the topics to be discussed in Austin's presentation are how to save bank and document preparation fees so that you'll never have to pay issuing bank fees again, how to prepare your own documents so they're "bank ready" on the day they leave your dock, and how to speed up the LC process and reduce your DSO and risk to your company. "LCs are still the safest way to do business internationally," she said. "If we do them correctly it should be quick and easy." Austin will also provide insight into the use of LCs and how to use them to your advantage, as well as free resources available to exporters through global banks and the Department of Commerce.
Attendees will leave the 90-minute, Added Advantage session with the knowledge they need to get LCs when and where they need them to start selling and shipping around the world. "This session will be jam packed with tips and tools on how the exporter can take this tedious process and turn it around to take control," said Austin.
To learn more about this teleconference, or to register, click here.
Jacob Barron, NACM staff writer
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Port cities in or near the Gulf of Mexico have certainly had a rough couple of years thanks to massive fallout from Hurricane Katrina, the BP oil spill and the deep recession. The commercial real estate industry, both regionally and nationally, also hasn't been in a good position since the middle portion of the last decade following its well-documented and severe industry correction. However, panelists at the Urban Land Institute (ULI) 2010 Fall Meeting in Washington, DC believe opportunity may be on the way for real estate in these port cities.
Southern ports and dependent industries have become accustomed to negative game-changers affecting them. However, the upcoming completion of the $5 billion Panama Canal expansion project could move the needle significantly in the other direction. ULI Senior Resident Fellow Steve Blank and author/consultant Jonathan Miller, who wrote ULI's 2011 edition of "Emerging Trends in Real Estate," said the expansion should help stabilize and grow commercial real estate, especially in New Orleans and Houston, by leaps and bounds. The expansion should cause a surge in shipping trade through the United States, though the usual suspects likely won't be in on the newfound opportunities, they predicted.
"They're not going to the West Coast ports because those ports have all they can handle," said Miller. "This is actually a very good thing."
It's possible that Savannah, GA could be added to that list as well since, as Miller and Blank noted, nearby Atlanta stands as the "international gateway to the U.S. South." Fortunately for the smaller, coastal city, it doesn't have a fraction of the overbuilding problem to contend with that Atlanta continues to experience.
Dr. Hans Belcsák, president of S.J. Rundt & Associates Inc., and a Brookings Institution report each outlined the impact of the canal expansion—featured in the November/December issue of NACM's Business Credit Magazine—saying it represented a huge opportunity for those ports and U.S. businesses, in general. While neither discounts the impact on West Coast ports as much as the ULI panelists, each intimates the southern ports stand to gain the most, in large part because of increasing opportunities in Brazil. Aided by a growing middle class and the hosting of globally high profile events over the next decade (FIFA's 2014 World Cup, the 2016 Olympic Games), Brazil is expected to surge past its present ranking of tenth among nations receiving exports from U.S. companies, said the Brookings report. The expansion of the canal will allow for far quicker and cheaper shipping between the emerging economic power and a large portion of the United States. And it's not the only major market that will become more accessible as a result of the expansion...far from it.
NACM members can read much more on the Panama Canal expansion and its potential impact on U.S. businesses on page 6 of the November/December edition of Business Credit Magazine. Click here to sign in and view an online copy of the magazine.
Brian Shappell, NACM staff writer
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A new program inaugurated by the Export-Import Bank (Ex-Im) will reinsure short-term export-credit insurance offered by private insurers to small businesses.
The new product aims to help U.S. small businesses export more safely and more frequently by increasing their access to private short-term export credit insurance, which has been elusive since the 2008-2009 financial crisis. By mitigating the considerable risk that private credit insurers take on when working with a small business, Ex-Im hopes to drive these companies to expand their underwriting capacity for smaller customers.
"Small businesses are particularly dependent upon short-term insurance to export with confidence," said Ex-Im Chairman and President Fred Hochberg. "Ex-Im Bank's new product will enable insurers to continue providing coverage and help more U.S. small- and mid-sized companies export to more countries and create more jobs in America."
The reinsurance program will specifically allow participating insurers to originate and underwrite transactions that otherwise would be outside of their portfolios due to their credit-limit caps on certain foreign countries and riskier buyers. Atradius Trade Credit Insurance announced last week that it has already signed such a contract with Ex-Im.
The move aligns with President Barack Obama's National Export Initiative (NEI), which is aiming to double exports within the next five years. Ex-Im has also recently upped its efforts to reach small businesses, announcing that fiscal year 2010 had the bank issuing a record high $24.5 billion in loans, guarantees and insurance, $5 billion of which was for smaller firms.
To learn more about Ex-Im, visit their website at www.exim.gov.
Jacob Barron, NACM staff writer
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Automotive and related parts production and exporting have quickly returned to their place as a, if not the, key cog in the manufacturing sectors of the North-Central United States as well as Mexico, which continues to see troubles far beyond the global economic downturn itself.
Reports in recent weeks note favorable production of autos and associated parts in both nations. The Federal Reserve's newest Beige Book roundup of economic conditions (read NACM's full 12-district roundup here) found a large part of September and October successes in the Cleveland, Chicago and Kansas City regions were directly attributable to the auto industry and, perhaps more importantly, the ability of companies in those areas to export. To wit, Missouri-based Kansas City Southern, a company best known in the rail industry, reported a 64% quarterly increase in automotive revenues. It was by far the largest bump in any of the company's categories. One of the biggest destinations for U.S cars and/or parts has been Brazil, which has an emerging middle class and an economy that puts it among a sort of "Big Three" in nations getting the world through the deep and ongoing downturn. China's appetite for autos amid its burgeoning middle class also remains high.
Meanwhile, Ford, the only one of the "Big Three" to not take a government bailout during hard times last year, announced last week it earned record profits of $1.7 billion for the third-quarter. The improvement, tied in part to cost-cutting measures as well as development of more efficient cars, has been more than welcome from a parts production sector that endured painfully slow years in 2008 and 2009. Deborah Thorne, Esq., of Barnes & Thornburg LLP, said the good news for suppliers should continue even as the economic rebound's pace continues to sputter.
"There's still a lot of unemployment out there, but aftermarket parts sales should keep doing well because more people are trying to fix their cars on their own," said Thorne. She also noted that many U.S.-based parts manufacturers should do well with their Mexican subsidiaries, of which most have at least one.
Mexico's economy, dogged by perceived mismanagement of its oil fields and an ultra-violent drug war that has gutted its tourism industry, has had but one positive sector to hang its proverbial hat on of late: auto manufacturing. NACM Economic Advisor Chris Kuehl, PhD, of Armada Corporate Intelligence, said the industry has become far and away the lead sector in pulling Mexico out of its national recession.
"The demand for the small cars that are made in Mexico by a wide variety of companies has led to a dramatic expansion of both exports and jobs as many of the operations have had to put on three shifts to keep up with the requests from all over the world," said Kuehl. "The Mexican advantage lies in the fact that they are close to the U.S. market (as well as other Latin markets), have a low-cost production environment and the automakers active in Mexico have invested in infrastructure. It is hard to make money on a small car unless production costs are very low."
Brian Shappell, NACM staff writer
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Two high-ranking Republican Senators recently criticized 13 federal agencies for hamstringing their own respective inspectors general (IGs), who serve as the agencies' independent watchdogs.
Following the results of an April survey of 69 federal inspectors general, which asked whether they had encountered any interference from the agencies they were charged with monitoring, Senators Chuck Grassley (R-IA) and Tom Coburn (R-OK) issued letters to the 13 agencies whose IGs suggested that they had received a lack of complete cooperation, whether in the form of blocked access to information or bureaucratic barriers that impeded effective investigations. Among those agencies receiving letters were business and financial divisions like the Small Business Administration (SBA), the Department of the Treasury and the Department of Commerce.
"Inspectors General can't conduct effective oversight of tax dollars and programs when the very agencies subject to the oversight impose delays, red tape and roadblocks," said Grassley. "To let this continue in the executive branch is letting the fox decide who gets in the henhouse."
The letters asked each agency head to explain some of the more serious allegations leveled by the IGs in their responses to the original survey. Among them were allegations that the SBA's IG encountered significant delays on 13 projects, even having to request the same information more than 16 times per project and experiencing delays in excess of 11 months. The senators' letter to the Treasury also outlined an instance where an IG was denied unrestricted access to information from the Office of the Comptroller of the Currency (OCC) for use in investigations of possible fraud by failed financial institutions, while the letter to the Commerce Department accused the agency of broadly "filtering" the IG's access to information.
"Good government starts with good oversight. When officials block investigations they do nothing more than protect the people and processes that waste billions of taxpayer dollars every year," said Coburn. "Inspectors general are the unsung heroes of Washington. Every day they fight battles to save taxpayers money. Officials who would deny them the documents and information they need to prevent waste, fraud and abuse, are doing the American people a great disservice and cannot be called public servants."
The other agencies receiving letters were the Department of Homeland Security, the Department of Transportation, the Department of Education, the Environmental Protection Agency, the General Services Administration, the Internal Revenue Service, the Library of Congress, the National Labor Relations Board, the Social Security Administration and the Department of State.
Jacob Barron, NACM staff writer
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