Manage finances for a global economy

Last updated on May 13th, 2019 at 02:43 pm

As the global economy takes hold, virtually every manufacturer is impacted in one way or another by what takes place around the world. In Wisconsin, it is not just the large household named Original Equipment Manufacturers (OEM’s) like Harley-Davidson Inc. and Oshkosh Truck Corp. that buy, sell, locate and compete worldwide. More and more of the small, closely held, family-run businesses are also involved in global trade. 

A recent statewide manufacturing study noted that over 82 percent of Wisconsin manufacturers’ corporate parents have annual sales revenue of less than $100 million. The same study cited that, nationally, small and mid-sized exporters grew twice the rate of large exporters during the period of 1992-2001, and export revenues from the small and mid-sized exporters rose 77 percent over that time.  Further, U.S. Trade Administration data suggests that the smaller and more flexible companies have considerable opportunities in the global market.

How do these companies – who don’t have the vast resources of larger, publicly traded organizations – obtain the proper financing to actively take advantage of global opportunities?

For the first decade of my banking career, I advised and counseled manufacturers with respect to import and export financing, letters of credit and foreign exchange as an international banker at two of Milwaukee’s largest banks. At the time I started my international banking career, there were roughly 15 bankers in Milwaukee that did what I did. Today, that number is fewer than five.  Although we were all involved in various aspects of international – none of us were involved in directly lending to our institutions’ customers engaged in international business – that was left to the commercial lenders at our banks. Ours was an advisory role to our customers as well as to our lenders so that both parties would understand the risks and risk mitigation options available and the impact of each on both parties.

This inverse relationship between the number of bankers versed in international issues and the number of companies engaging in global activities has created a void in the market place.

Lending to the international company can be broken down into three simple categories – companies that source, sell or site around the world. Of course, many companies are involved in more than one of these situations, but each has its own lending issues to deal with.

Before getting into each category, it is important to review general lending guidelines. Typically, banks lend money based on a company’s collateral and cash flow generated from operations.  Collateral is in the form of company assets – either current or term assets. Current assets generally consist of inventory and accounts receivable and term assets include property, plant and equipment. Cash flow consists of profit plus non-cash expenses such as depreciation.  Current assets support a line of credit and term assets support term loans for equipment and real estate.  Banks will advance on a percentage of those assets.


This is perhaps the most straightforward as financing purchases from foreign suppliers is very similar to funding domestic purchases. A line of credit is established for the borrower and they can use that line to buy goods domestically or internationally. The only issue (from a lending perspective) that may differentiate a domestic purchase from a foreign purchase is the payment terms. It is most common for domestic purchases to be made on open account terms where the buyer of the product is able to pay the supplier 30 to 60 days after shipment. Internationally, this may also be the case, or the seller may request a letter of credit to support the purchase of product. Either way, the bank makes credit available to their customer (line of credit or issuance of letters of credit) based on the company’s level of current assets no matter the location of the supplier.


I see two common scenarios where exporters face difficulties in obtaining the needed financing for their business. The first is where a significant portion of total sales is to foreign clients.  The second is where the company has an extraordinarily large transaction that stretches their financial resources.

Companies selling globally where their foreign sales make up a significant portion of total sales often run into difficulties getting the needed financing because banks do not traditionally lend against foreign receivables. Thus if a small exporter has 50 percent of its sales (and thus receivables) to foreign customers, their borrowing capabilities are vastly limited.

One option to entice banks to lend against foreign receivables is to have them insured. There are both public (i.e. government) and private export credit insurance policies available to U.S. exporters. These policies typically cover between 80 and 95 percent of commercial and political risks of non-payment. Like other insurance products, premiums are based on the policy type, spread of risk, level of sales covered (exposure) and the amount of the first loss deductible.  Export credit insurance has several other benefits to both importer and exporter in addition to obtaining financing for export activities and is an underutilized tool in the United States. Other options include receiving a standby letter of credit or guarantee from a foreign bank.

Companies that have extraordinarily large, project type transactions find it especially difficult to obtain the working capital needed to procure raw materials, create work-in-process and otherwise fulfill the project requirements. This scenario is often referred to as the python swallowing the pig – a significant project makes up a large portion of a small company’s annual sales. For instance a $10 million manufacturer may receive an order from overseas for $5 million worth of goods and services. This company’s normal working capital sources will not be sufficient to secure the raw materials and pay the bills when the sale won’t actually be complete for six months.  Funding sources available in this situation include: progress payments from the buyer, extended trade terms from supply sources, over advances on current assets of the company by their bank or working with export working capital programs provided through the U.S. Government.  Both the Small Business Administration ( and the Export-Import Bank of the United States ( offer these programs where they provide partial guarantees to the banks funding qualified export activity.


Small to mid-sized companies looking to expand (site) outside of the United States have several financing options to consider.  Companies must first decide how much autonomy to grant the foreign management team.  This decision answers the question of whether to finance the expansion through domestic means (equity injection, inter-company loans, etc.) or through foreign institutions.  Adequate controls are crucial if the foreign management team is to handle its own financing.  Both financing scenarios have foreign exchange implications that must be explored.  For instance, if you have a plant in Mexico that also sells to the Mexican market in the local currency it may be most beneficial to borrow in Pesos from a Mexican bank and create a natural currency hedge.

One of the conclusions of the manufacturing study cited earlier is that “globalization is here to stay, and most of the world’s market is outside of the United States.” Don’t let financing questions keep your business from capitalizing on the significant opportunities presented by globalization.


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