States Finance Small Companies

LAST year, Custom Wheel Lights Inc., of Fort Worth, Texas, a manufacturer of high-intensity sidelight wheel reflectors and decals, faced a problem common to small businesses everywhere: the need to secure adequate financing. Unable initially to get help from troubled lending institutions in the state, many of which lack expertise in export trade finance, the company turned to an unlikely source for funding - the Texas Department of Commerce. The department's exporters loan guarantee program, initiated in 1989, helps small and midsize businesses through a revolving fund. The fund is used to guarantee up to 85 percent of the value of certain loans by private lenders for working capital and equipment. Custom Wheel Lights secured a line of credit up to $350,000 to finance a portion of its export business.

This is but one of the small-business financing programs some state and city governments have established to help would-be exporters as United States banks have retrenched and Congress has cut funding for federal programs. California, Maryland, and Texas, and cities like Los Angeles, have developed programs over the past few years, prompted by the growing needs of small-business owners for more money, less bureaucracy, and better education about export financing.

Most are less than a decade old - California's is the most entrenched - and work closely with the US Export-Import Bank (Eximbank), the chief source of export financing and guarantees at the federal level.

The budgets for these state programs could come increasingly into question as the current recession squeezes state finances. At the same time, banks are under intense federal, state, and board scrutiny with their loan portfolios, making it much harder for marginal customers to obtain new credit. Companies that are undercapitalized are especially scrutinized.

Of state programs, California's is the most active. It has processed more than 200 working-capital loan guarantees for exporters over a five-year period. This represents nearly $60 million in bank loans - one-tenth Eximbank's current direct-loan budget - and over $200 million in export sales. Altogether, the effort has spawned 4,800 new jobs since 1985. California has assisted 20 other states in their financing efforts.

EMBOLDENED with its success, California plans to step up the pace. At the current level of activity, predicts L. Fargo Wells, director of the California Export Finance Office, the state will process roughly 100 working-capital loan guarantees a year. This could yield more than $30 million in loans annually, he figures, and about four times that in export sales.

Marie Torres, director of the four-year-old export finance program of the Maryland Industrial Development Financing Authority (MIDFA), says her state's program has been a success since it began in 1986. As an example, she cites Overseas Marketing Group Company, of Baltimore, an exporter of educational, training equipment and materials for libraries and engineering laboratories. Previously, because of limited working capital, it had difficulty obtaining bank assistance and bidding on projects overseas.

But early last year, with guarantees of $350,000 from MIDFA on a loan, OMG was able to bid on additional projects in Malaysia and East Africa. ``Without this support,'' said owner Morris Tischler, ``our growth pattern would have been very slow because we're pulling ourselves up by the bootstraps.''

Over time, such grass-roots programs should boost not only the resources and funds available for export financing, but provide more firms with the ``detailed help they need,'' says Kenneth Keach, president of Washington state's Export Assistance Center, which provided $10.8 million in export financings to state exporters in 1989.

Other benefits could accrue, too. Texas, for instance, is trying to dispel the public's poor perception of governmental assistance programs by ``making it as easy as possible for people to apply,'' says Edward Sosa, export finance coordinator for the state's Department of Commerce.