This is the final installment of CAP’s “Big Ideas for Small Business” series. The weekly series aims to offer a collection of bold proposals that taken together will form a progressive pro-business agenda for the small- and medium-sized companies—and future big companies—our economic competitiveness depends on.
In this space CAP’s Economic Policy team has offered a weekly pro-growth alternative to the simplistic conservative advocacy for irresponsible tax policy and unaccountable government that are hardly the real priorities of small businesses—and that will do nothing to boost economic growth and ensure widely shared prosperity.
The problem: Small businesses need customers abroad
A small business’s success depends on its ability to sell its products and services. With millions of middle-class Americans tightening their belts amid the housing market’s continued weakness and persistent unemployment, small businesses are struggling to find customers.
Yet 95 percent of the world’s consumers and three-quarters of its purchasing power reside outside the United States. American small businesses could tap into this potentially lucrative consumer base outside the nation’s borders. But to do so, they need better access to loans, guarantees, and insurance products, which together constitute “export finance.”
Exporters must typically produce and supply their goods before they get paid. While large firms with big operating budgets can either afford to finance their operations upfront or get bank financing, small businesses are at a disadvantage because they are considered a riskier bet. Private lenders are frequently unwilling to accept the commercial and political risks associated with such lending, especially to young or small businesses looking to export for the first time. And the volatility of the global economy means that banks have tightened credit.
The government can play an important role in filling the gaps in export financing, especially for small businesses. Unfortunately, today the Export-Import Bank—the government agency that provides export financing for U.S. companies—lacks the resources to adequately service America’s small businesses. The bank’s financing for exports lags significantly behind other countries, especially those with state-owned enterprises. Those countries, such as China, provide their businesses with seemingly unlimited access to cheap capital. The Export-Import Bank’s limited resources also means it is constrained in its activities to adequately inform small businesses of the opportunities available to them.
The solution: Raise the Export-Import Bank’s statutory cap, expand outreach, and increase access to public capital for small businesses
The Export-Import Bank’s charter caps its overall outstanding credits, guarantees, and loans at $100 billion. Congress is poised to raise the cap to $135 billion but has yet to pass the bill that does so.
In recent years the Export-Import Bank has increased its support of U.S. exports. In 2011 it authorized a historic $32.7 billion to support them. But of this, small businesses only got $6 billion in financing and insurance. Congress should significantly raise the cap on the Export-Import Bank’s statutory lending and expand the amount of credit extended to America’s small businesses so they can be competitive on a global stage.
America’s small businesses are an important source of jobs for millions of hardworking, middle-class Americans. Helping these companies sell in foreign markets will help expand employment at home, which will in turn increase demand here for homegrown products and services.
To be sure, the Export-Import Bank has been improving its support for small business. Last year the bank launched a short-term export credit-insurance product, streamlined the application process, and improved outreach efforts with the U.S. Trade Representative’s office, the Department of Commerce, and the Small Business Administration’s Office of International Trade. These efforts should be scaled up to encourage more of America’s small businesses to export.
President Barack Obama should ask Congress to raise the Export-Import Bank’s statutory lending capacity well beyond $135 billion. Today the bank is self-sustaining, so why not raise its lending capacity to benefit America’s small businesses? That would follow the approach of export finance institutions in other countries with which we trade and which operate more like commercial banks, with limits on lending based less on firm statutory caps and more on capital reserves and internal management decisions.
A push to raise the Export-Import Bank’s capacity to finance exports provides an opportunity for a bipartisan deal that supports business and entrepreneurship, while at the same time creating middle-class jobs for citizens across America.
Sabina Dewan is Director of Globalization and International Employment at the Center for American Progress.