S.D. Firms Find Key to Export Financing : State Agency Helps to Arrange Loans When Banks Turn Their Backs
In late 1987, the Taiwan Fisheries Research Institute invited San Diego-based SeaSpace to bid on a contract to supply an Earth station to collect data from weather satellites.
SeaSpace was a tiny company that Robert Bernstein had set up in his garage in 1982 after leaving the Scripps Institution of Oceanography, where, as a senior scientist, he had developed an Earth station that received signals from three satellites used by the National Oceanic and Atmospheric Administration.
SeaSpace, which only months before had sold its first commercial Earth station, found itself in a fierce bidding war with the Japanese industrial giant NEC, which also wanted the Taiwanese contract.
“It was important for us to win,” said Bernstein’s wife, Linda, one of SeaSpace’s six employees. “We would sit around the kitchen table and wonder if we should knock another $20,000 off the price.”
Everything Up Front
When SeaSpace was awarded the $200,000 contract, it immediately encountered another obstacle: “The contract specified that we would not get paid until the system (was) shipped,” Bernstein said. “We had to buy everything up front.”
Their banker wasn’t interested in providing a loan, even though the company had a signed contract and an irrevocable letter of credit from the Taiwanese government.
“When we needed our bank, they weren’t there,” Bernstein said.
The Bernsteins then heard about the California Export Finance Office, which guarantees short-term loans of up to $350,000 for companies with export orders. Hugh Grigsby, CEFO’s San Diego representative, helped SeaSpace arrange a loan through the Scripps Bank in La Jolla.
SeaSpace has since sold two more of its Earth stations to Korea. Those deals required CEFO loan guarantees of more than $300,000.
In 1988, the company sold more than $500,000 worth of equipment internationally and is expecting its export business to grow rapidly.
SeaSpace is one of many companies that CEFO has helped to find financing so foreign contracts could be filled.
“Many small, new companies are now looking globally,” said Cassie De Berge, vice president of world trade services at First Interstate Bank and president of the 450-member San Diego World Trade Assn.
Although reliable figures about exports generated in San Diego are hard to come by--the federal government tracks exports by point of departure rather than where they are manufactured--local representatives of the U.S. Department of Commerce estimate that exports accounted for $2.6 billion in sales, up 35% from the previous year.
San Diego’s industrial base--especially its electrical and electronic-machinery products--lends itself to exports, according to Julie Osman, a Commerce Department trade specialist. Electrical and electronic products, other types of machinery and scientific instruments accounted for about 70% of San Diego exports during recent years, she said. About 1,500 local companies are involved in international trade--meaning both imports and exports.
The Greater San Diego Chamber of Commerce estimates that exports account for about 20% of the region’s manufacturing output. Nationally, exports average about 15% of manufacturing output.
Despite the heightened attention to foreign trade opportunities, small companies trying to expand their overseas activities can face serious obstacles.
Stuck With Low Credit Line
In 1979, for example, Steve and Carla Sandahl established HyPAC, a San Marcos-based company that exports replacement parts for heavy mining and construction equipment.
From its 12,500-square-foot facility, HyPAC ships parts from various manufacturers to customers in 20 countries. By 1987, the company had grown to $5.5 million in sales--but it was stuck with a credit line of just $100,000.
“We couldn’t grow anymore,” said HyPAC Vice President Howard Jaffe. HyPAC was unable to buy inventory in large enough quantities to merit the best pricing, and the company simply couldn’t compete for larger contracts.
HyPAC turned down an order for four used, 120-ton vehicles because it couldn’t arrange financing. The insufficient credit line meant the company executives had to concentrate as much on managing their accounts receivable as increasing sales, Jaffe said.
A profitable company with a good track record, HyPAC turned to its bank for help. “If you show them a letter of credit, they look at you with a blank stare,” Jaffe said. “The banks here are so parochial.”
Eventually, with a guarantee from CEFO, HyPAC increased its credit line to $350,000 through First National Bank. Sales next year should reach the $10-million mark, virtually all of it from exports.
Low on Banks’ List
The problems small companies face in arranging export finance is not restricted to San Diego banks, but local companies do face some added difficulties.
“Because banks everywhere got burned with other types of overseas financing, they have moved away from all international financing, including trade finance,” said Grigsby, CEFO’s local representative. “And in San Diego, banks have been able to make so much money in real estate and construction that they have not been interested in export finance.”
Two years ago, Anderson Growers, a Leucadia-based wholesale nursery that sells seeds abroad, dramatically expanded its operation by purchasing 22 acres in Elfin Forest near Vista.
Local banks were happy to help finance the land purchase, but they refused to provide the credit needed to increase Anderson’s sales staff, said Eric Anderson, a vice president and grandson of founder Horace Anderson.
Anderson needed financing because it must grow and ship seeds to customers in Holland, Germany and Australia--a process that can take as long as six months.
With CEFO’s help, the financing was arranged and exports began to blossom. Last year, exports contributed $500,000 to the company’s revenues. Since the financing has come on line, exports have increased 30%. “We have become real aggressive,” Eric Anderson said.
Picture Is Improving
The trade finance picture seems to be improving. According to Marcia Nora, assistant vice president at First National Bank, who works with HyPAC, “there hasn’t been the demand to local banks to develop an export business. But that is changing.”
Indeed, argued First Interstate’s De Berge, the banking community in San Diego is becoming more receptive to global trade. Local banks are beginning to develop export expertise, and First Interstate, Bank of America and Security Pacific all have international trade specialists based in San Diego.
The charge that local banks are parochial, De Berge said, “is no longer totally legitimate.”
Of course, small companies may have trouble attracting the attention of the export-finance departments of huge international banks. Georg Schlueter bought Hull Electronics two years ago because he saw an international opportunity.
For 20 years the company manufactured long-range radio telephones, primarily for marine applications. But the equipment can also be used in developing countries, where setting up a traditional telephone network is difficult. “The international market is potentially 10 to 15 times larger than the domestic,” Schlueter said.
Shortly after taking over the company, he began to solicit foreign distributors.
“The first question they asked is how the export is financed,” Schlueter said. Without adequate credit, he was restricted to clients who could meet the tight conditions associated with most letters of credit.
Sales Caught On
With CEFO’s support, however, Schlueter was able to offer more relaxed payment terms to his overseas customers.
“That is when sales caught on,” he said. Exports rose from 5% to 10% of his business to 60%-80%. He now has customers throughout the Pacific Rim, including Indonesia, Hong Kong and Singapore. The company’s total revenues have topped $1 million.
In the past 16 months, CEFO has guaranteed more than $2.6 million in loans to San Diego companies, supporting sales of more than $13.6 million. But CEFO is not the only resource available for small companies interested in increasing exports.
The World Trade Assn., the Chamber of Commerce and the U.S. Department of Commerce all run regular programs covering global trade issues.
“You can find all the resources you need locally,” said the chamber’s Leyton. “We coordinate our efforts with the goal of having more San Diego firms equipped for overseas sales.”
