As one of South Florida’s leading trade bankers, Jennifer Enslein is not disappointed more banks don’t lend to small-business exporters.
That just means more business for the international division she heads at Capital Bank. The Miami bank has opened nine offices in Broward and Palm Beach counties since the mid-1980s. Much of the growth has come from lending to small importers and exporters.
“I get more new business on any given month in our Broward region than from our other two regions combined,” Enslein said of Capital’s two regions in Dade County.
In South Florida, a handful of smaller banks are discovering that trade finance is a good way to win over small-business customers. Capital, Popular Bank, Ocean Bank and Hamilton Bank are thriving on the business, said Enslein.
Without bank loans, exporters must either turn away business or deal with finance companies, whose fees can halve an exporter’s profit margin.
The lack of bank credit has been particularly troublesome in South Florida, where large manufacturers are scarce and small trading companies abound, said Steve Fancher, president of the Florida Export Finance Corp.
“We are one of the largest exporting states and the number of companies exporting differentiates us from the majority of states,” Fancher said. “Trading companies are by nature smaller companies.”
Capital has made a name for itself as one of only four banks in South Florida willing to write back-to-back letters of credit, said Richard Uss, who reviews loan guarantee applications for the Florida Export Finance Corp.
Letters of credit are the lubricant of international trade. They are agreements issued by an importer’s bank that guarantee payment to an exporter’s bank as long as the goods are delivered at a certain point within a certain period of time with proper documentation.
Essentially, back-to-back letters of credit allow an exporter to borrow against a customer’s letter of credit. Without them, many promising export deals fall apart because the exporter can’t get the money he needs to buy the goods for export.
Capital has learned that back-to-backs are not nearly as risky – and much more profitable – than many bankers think.
That’s because all back-to-backs are ultimately collateralized by lines of credit extended to the importer’s bank.
“You lose more on a commercial loan than an international letter of credit,” Enslein said. “It’s safer dealing with another bank.”
From 1984 to 1992, Capital’s international division processed $1 billion in trade-related transactions and generated about 40 percent of the bank’s total income, Enslein said. It has reported no losses from trade-related transactions, she said.
That performance has drawn more banks into trade finance in recent years. The competition should make credit easier to find for many small-business exporters.
“In 1992, we were the most profitable division at Capital Bank,” Enslein said. “That was a wake-up call to everybody.”
Back-to-backs are in particularly high demand in South Florida because so much of what is exported from here is imported first from Asia and Europe.
“Miami, and Broward to a certain extent, have become a bridge for the letter-of-credit market,” Enslein said. “Every Peruvian who lives here and every Colombian who lives here is agent for someone overseas. It’s cheaper to bring goods into the states and then ship them into Latin America, because the duties on bringing goods from the Orient into Latin America are higher than bringing them in from the states.”
Consider TravelPro, a luggage design company in Deerfield Beach founded by former Northwestern Airline pilot Robert Plath in 1991. TravelPro imports most of its products from manufacturers in Asia and then sells them in North America.
In 1991, the company got its first export order, a $35,000 order from Canada.
Plath did not have the cash to import the luggage, so he asked his Canadian customer to set up a letter of credit in favor of Travelpro.
But when Plath tried to borrow against the letter of credit, he was turned down by four or five banks.
“We had trouble with a lot of other banks understanding our business,” Plath said. “We mucked around with Southeast Bank for two years. They forced us to put up our own money for it. When you’re growing at 300 and 400 percent, you’re cash strapped.”
Plath then read a newspaper ad for Capital Bank, which ended up issuing him a back-to-back letter of credit.
Since then, Travelpro has grown to $30 million in annual sales. It was recently ranked as the 12th-fastest-growing private company in the United States by Inc. magazine. In coming months, it will transfer its manufacturing jobs to two factories in Dade County, Plath said.
Southeast Bank, meanwhile, was seized by federal bank regulators in 1991.