Recently, the U.S. Export-Import Bank (EXIM) issued a proposal that would align its size standards for determining whether a business qualifies as a “small business” with the Small Business Administration’s (SBA) current SBA Loan Program standards. Such a change would decrease inconsistencies among the entities, and potentially increase EXIM lending opportunities for small businesses that otherwise do not meet the SBA’s industry-based size standards as defined under the North American Industry Classification System (NAICS).
The EXIM Bank Charter requires the EXIM Bank to make at least 25 percent of its overall loan, guarantee, and insurance authority to supporting financing of exports by “small business concerns,” as defined by the Small Business Act, Section 3. Historically, the EXIM Bank relied on the SBA’s industry-based size standards to determine which participants in its programs may be considered small businesses.Under Section 1116 of the Small Business Jobs Act of 2010, however, the SBA promulgated an “Alternative Size Standard” that, rather than relying on strictly industry-based size standards, considers applicants for the SBA programs using maximum tangible net worth and average net income. Referred to as the “Interim Rule” (until the SBA establishes a permanent size definition), this alternative standard provides that a business may qualify for the SBA Loan Program if the business: (1) is less than $15 million in tangible net worth; and (2) no more than $5 million in average net income after Federal income taxes.
Coordination of the EXIM Bank’s adoption of the SBA Interim Rule is logical. The SBA Loan Program and EXIM work in tandem and in conjunction with the SBA 7(a) Loan Programs. Currently, if a business qualifies as “small” under the SBA’s net worth and average net income qualification, but does not qualify under the EXIM’s NAICS industry-based size standards, such a company would not be considered a small business for programs offered by the EXIM Bank. In its proposal, the EIXM Bank cautions that such inconsistencies can cause confusion in the marketplace and cause the same company to be treated differently by the SBA and EXIM Bank, notwithstanding the fact that the entities evaluate applicants for similar purposes. Size determination inconsistencies also create small business reporting concerns to Congress.
In addition to creating cohesive and complimentary agency standards, adoption of the Interim Rule would likely enable business concerns that do not qualify as “small” under the NAICS standards. While the EXIM Bank has not collected concrete data on the potential increase in qualified small business concerns under the Interim Rule, it believes adoption of the rule likely would increase opportunity for businesses to qualify for the EXIM programs.
While comments to the proposed change were due Dec. 6, 2016, businesses interested in qualifying for participation in EXIM Bank programs will have to wait a bit longer to find out whether they in fact might qualify as “small” after all.
Image courtesy of flickr (licensed) by Barbara Krawcowicz