Best Practices: International Trade Loans Reimagined: Opportunity and Risk for SBA Lenders

The SBA’s International Trade Loan (“ITL”) program has recently undergone a meaningful transformation intended to expand opportunities for access to capital. Previously a niche, export-focused product, ITL is now a broader financing tool for domestic growth, reshoring, and businesses facing global competitive pressure. And with a 90% guaranty, ITL is a very attractive program for SBA lenders.

As with all SBA programs, lenders must ensure the ITL loans meet specific requirements. A general overview of those requirements is outline in this article.

ITL Is No Longer Just for Exporters

Eligibility for ITL has been historically tied to export development. That path is still there, and it still demands: an export business plan, projections, and a clear link between loan proceeds and expanded export activity.

Now, the SBA has added a new eligibility pathway for borrowers “adversely affected by import competition.” This means, a borrower no longer needs to export to qualify. Instead, borrowers must demonstrate that foreign competition has negatively impacted their business and that the proposed financing will improve their competitive position. To make sure the 90% guaranty remains enforceable, meticulous documentation must be maintained from the initial application through the final SBA loan closing.

Lenders should include detailed information in their credit memo to demonstrate ITL eligibility. Practically, that means the credit memo should connect the following dots:

1. How the foreign competition has negatively impacted the borrower’s business,
2. How the proposed financing will improve the borrower’s competitive position,
3. How the structure aligns with ITL intent, and
4. Why this loan is structured as an ITL instead of a standard 7(a).

Structuring Pitfalls to Avoid

Lender should remember that there are separate limitations on an ITL that do not apply to standard 7a loans and structure deals according. For example:

• Change of ownership transactions tied to export development generally require a full (100%) acquisition. Partial buyouts that might be permissible in a traditional 7(a) structure are ineligible here.
• Transactions under the “adverse impact” category must align with operational and industry continuity expectations, particularly where the borrower is expanding through acquisition.

• Lenders may obtain a policy exception to the requirement for a first lien on all business assets if the lender can demonstrate “adequate assurance of repayment.” However, it is unclear what documentation is required to meet this threshold. Also, it is possible lenders may need to enter into intercreditor agreements with existing creditors to clarify SBA creditor rights regarding shared collateral.

The SBA has made ITL more accessible and more versatile, which creates more opportunities for lenders and borrowers. However, there are many standards that need to be met in order to comply with the eligibility requirements. Lenders should ensure their credit memos are sufficiently detailed to stand up for review in the event of an audit or guaranty purchase.