The Costs of Financing Exports for Small Business







United States Small Business Administration
Office of Advocacy
RS 168


The Costs of Financing Exports for Small Business by McKendrick & Associates


1996. 199 p. McKendrick & Associates, One Brownstone Dr., Horsham, PA 19044 under contract number SBA-8031-OA-93



There is a long­held belief that lack of financing is one of the principal obstacles to small firm exporting. Export finance generally encompasses two activities: (1) working capital financing, usually in the pre-shipment stage; and (2) very short-term financing accompanying the use of different payment mechanisms typically employed after shipment. The purpose of this study is to examine the financing issues faced by small exporters, including availability of trade financing and costs associated with financing and payment settlement.


Scope and Methodology

The study examines the prevalence and costs of working capital financing among small exporters; payment mechanisms; the costs of export finance for manufacturers versus non­manufacturers and export management companies; the role of the banking and finance sector in export finance markets; awareness levels of export finance; and use of alternatives in export finance, including transaction finance firms.

A literature search was undertaken to identify trade finance issues for small businesses in the United States. This was followed by a series of loosely structured telephone interviews with 60 U.S. exporters (identified from a list maintained by the Small Business Foundation of America). The interview questions focused on export activities and experience, financing requirements, payment mechanisms, perceptions about export finance issues, and firm characteristics. For information on the providers of export finance, in-depth interviews were conducted with nine suppliers of trade financing, including banks and financial firms.

Also for this study, the costs and practices of a major trading partner were examined as a comparison to gauge U.S. trends. Because of its similarities to the United States in trade environments, the Federal Republic of Germany was selected.



  • Small firms often structure their transactions to eliminate the need for external working capital. Most of the small businesses interviewed did not use pre­shipment financing. They met their cash needs for this stage of the transaction by overall working capital management or through advance payments from their buyers. The handful of companies that did require financing were exporters with relatively large orders.
  • Drawing on an established line of credit from a commercial bank is the lowest­cost method of external financing. Financing costs are almost twice as high from non­bank financial firms as from banks, not including points or up­front fees for initiating loans.
  • Payment mechanisms such as letters of credit take a relatively deeper bite out of smaller transactions.
  • Differences in the capital structures of manufacturing and non­manufacturing firms affect their relative ability to obtain trade finance. In addition, companies not primarily in the export business, such as manufacturers, tend to pay more for export finance than companies directly involved in the exporting business.
  • The banking sector has re-emerged as a trade finance source, and many see opportunities in the small business trade finance market. The potential expansion could alleviate the most restrictive and debilitating factor in small business export finance, that is, the lack of systematic access by exporters.
  • The vast majority of companies in the study used traditional banks. There is a pervasive lack of knowledge of alternate finance mechanisms such as forfaiters, factorers, transaction finance firms, and public sector lending programs. Public sector programs and private financial institutions have not reached the small exporter with information about their programs.
  • Small business export finance costs compare favorably with those of Germany. However, Germany's small exporters may receive higher levels of service.


Ordering Information

The complete report is available from:

National Technical Information Service
U.S. Department of Commerce
5285 Port Royal Road
Springfield, VA 22161
(703) 487-4650
(703) 487-4639 (TDD)

Order Number: PB96 181300

Cost: A07/$28.00; A02/$14.00 Microf.

*Last Modified 6-11-01