Best Practices: Refresher on International Trade Loans Under SOP 50 10 7.1

A borrower located in the United States that is engaged in international business operations may qualify for an International Trade Loan.  An International Trade Loan can be used to improve the competitive position of a borrower that is a current exporter or to develop new export markets.  An SBA lender can make an International Trade Loan up to $5,000,000.00 and receive a maximum guaranty of 90 percent or $4,500,000.00, however, if the borrower also has a 7(a) loan for working capital, the International Trade Loan amount guaranteed for working capital combined with any 7(a) loan to the borrower for working capital cannot exceed $4,000,000.00.  See SOP 50 10 7.1 at pages 246-247.

In order to be eligible for an International Trade Loan, the borrower must meet the following criteria set forth in SOP 50 10 7.1 at pages 239-240 and summarized below.

1. One of the following must be true:

a. With the International Trade Loan proceeds, the borrower will expand existing export markets or develop new export markets, as demonstrated by borrower’s export business plan. The borrower’s export business plan must include a projection and narrative that reasonably supports the likelihood of borrower’s expanded export sales, OR

b. The borrower must show that it is adversely impacted by import competition by demonstrating injury from increased competition with foreign companies in its market. The borrower must provide a narrative and financials which show that competing imported products or services have caused a decline in the borrower’s competitive position.  In the alternative, the borrower can submit a request for a finding of injury to the International Trade Commission or the Secretary of Commerce.

            AND

2. The borrower must show that the International Trade Loan will allow the borrower to improve its competitive position. Evidence of the same must be included in lender’s credit memorandum.

An International Trade Loan can only be used for the following purposes set forth in SOP 50 10 7.1 at pages 240-246:

1. “Acquire, construct, renovate, modernize, improve, or expand facilities and equipment to be used in the United States to produce goods or services involved in international trade and to develop and penetrate foreign markets;”
2. Working Capital;
3. Debt Refinancing meeting all requirements set forth in SOP 50 10 7.1, Section B, Ch 4, C(2)(a)(iii); or
4. Change of Ownership meeting all requirements set forth in SOP 50 10 7.1, Section B, Ch 4, C(2)(a)(iv).

An International Trade Loan cannot be made to a borrower who is directly or indirectly exporting to a foreign country listed as a prohibited country on the Export-Import Bank Country Limitation Schedule.  In addition, a borrower in NAICS Industry Subsector Code 721 (Accommodation) and NAICS Industry Subsector Code 457 (Gasoline Stations) is not eligible for an International Trade Loan.  See SOP 50 10 7.1 at pages 239-240.

For assistance with SBA lending matters, contact the attorneys at Starfield & Smith, PC at 215.542.7070 or visit us at www.starfieldsmith.com.