Small businesses looking to expand overseas have a variety of obstacles to overcome.
(article continues below)
First and foremost among those is probably the process of acquiring enough capital for expansion. Not many investors will put up funds when expanding into an emerging market, and with the recent credit crisis, there has been a lack of funds for all parties.
Expanding overseas is a huge endeavor and can take millions of dollars to create a successful overseas arm. The initial investment is the most important part of the venture, since it lays the foundation for future customer relations and gets the company familiar with the new country.
Small businesses generally have fewer assets to offer as collateral for a large loan. This makes acquiring these funds nearly impossible for some companies. However, there are some avenues that small businesses can take to lock up financing.
The Small Business Administration (SBA) is a great resource for many small businesses. They offer services ranging from educational to financial. However, most of these are intended for domestic purposes.
The SBA has a program where a company can borrow up to $750,000 that is partially guaranteed by the SBA. In actuality, the SBA is not lending you the money, but providing a middle man to lower the risk for a third party lender. This program is very popular for entrepreneurs and can offer a great option for financing when starting up a business. When expanding overseas, a company can encounter any number of obstacles and this increases the risk of the project.
The problem is that expanding overseas is more risky. That is why OPIC was created; to facilitate investment in foreign countries. The Overseas Private Investment Corporation (OPIC) has some programs that are suitable for small businesses looking to expand overseas. If the company has revenues of less than $250 million, they can be eligible for a loan from $100,000 to $250 million. These loans can cover up to 60% of the overseas investment.
However, for companies with lower revenues of up to $35 million, there are special arrangements that can be made. For companies with revenues below this threshold, there are loans available in the range of $100,000 to $10 million. The terms range from three to fifteen years. The company applying must own 25% of the project overseas, but the loan can cover up to 65% of the total costs. The interest rates are fixed for the entirety of the loan and are based on OPIC's cost of capital and the appropriate risk spread.
This offers a great source of funds for small businesses that may not be able to expand overseas without this program. It is backed by the government and if the company is the right fit for the program it can be a great option.