Small- and medium-sized enterprises (SMEs) in California may soon be able to apply for a letter of credit (L/C) based pre-export finance facility backed and delivered by several publicly funded business support agencies and private sector players.

The new facility claims it would fulfil the needs of exporting Californian SMEs that larger financial institutions are not interested in fulfilling according to its managers.

SME focus

The facility will be offered under the TradePort Export Finance Online (TEFO) programme that according to a statement by the programme managers is to be provided by a network of organisations focused on exporting SMEs based in California.

Banks, the US Department of Commerce, the US Export-Import Bank, and the US Small Business Administration would deliver the programme the statement says.

Trade finance services

The programme plans to provide trade finance consulting services as well as the pre-export finance facility and may be launched in January 2005.

According to TradePort's Jim Faith, who is managing the new programme, larger financial institutions are "less interested in working with SMEs because of smaller deal size and volumes accompanied by greater risk."

Working capital component

The new programme would provide several trade finance services, specifically focused on SMEs, including L/C facilities and factoring.

The TEFO pre-export working capital facility would be one component of the programme according to a TradePort statement. It would provide loans against documentary L/Cs for export transactions only and may be provided to the L/C beneficiary or to the beneficiary's suppliers or vendors.

Benefits

A significant aspect of the facility is that financing will not according to Faith require what he describes as "traditional collateral requirements." Californian exporters that receive loans would apparently be able to use them to extend post-shipment payment terms to creditworthy foreign buyers.

Credits arranged through the programme would typically be used to finance the purchase of materials, services and labour to fulfil export sales orders and contracts according to the TradePort statement.

TradePort is an Internet portal jointly operated by the San Francisco-based Bay Area Economic Forum and the Los Angeles Area Chamber of Commerce and managed by the Monterey Bay International Trade Association.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.