Small business hangs on fate of Export-Import Bank
Some oil and gas projects being built in the Middle East and Asia could mean $100 million in revenue and dozens more jobs for Aquatech.
CEO Venkee Sharma is confident that the Canonsburg company could win that business to supply water purification equipment, but not without financial backing from U.S. Export-Import Bank. The American credit agency is in limbo as Congress debates whether it should exist.
“This has the potential to take us out of growth mode as a company,” Sharma said, referring to the bank's uncertain future.
Aquatech is among 320 Pennsylvania companies that have turned to Ex-Im bank for loans, loan guarantees and insurance to sell their products overseas. But after 81 years of existence, the bank's charter lapsed July 1 when Congress refused to extend its reauthorization. Conservative critics, including Pennsylvania's U.S. Sen. Pat Toomey, have said it amounts to a form of corporate welfare for large companies.
The bank is not unique; more than 80 other export credit agencies operate around the world.
Supporters say the Ex-Im bank levels the playing field for American exporters who are competing in countries where foreign competitors are heavily subsidized. They contend that failing to reauthorize its charter sends jobs overseas while threatening small and mid-sized businesses such as Aquatech because they don't have the resources to look for alternative financing.
“A lot of small-business owners have taken second mortgages on their house,” said Linda Dempsey, vice president of international economic affairs for the National Association of Manufacturers, which supports reauthorizing the bank. “Ex-Im gives them the working capital loans to keep them going until they get paid.”
Critics say the bank disrupts free markets and enables powerful corporations such as Caterpillar and General Electric that can exist without government help. The bank effectively chooses winners and losers, they say.
“The Export-Import Bank is one of the most egregious forms of corporate welfare in our government, effectively allowing politically favored companies to receive generous subsides at the expense of other American businesses and workers,” Sen. Toomey wrote to his colleagues in the Senate in May.
The bank supports itself through fees and interest payments and makes money for taxpayers. The bank returned a profit to the Treasury of $674.7 million last year, according to Ex-Im spokesman Lawton King.
It has supported $7 billion in exports from Pennsylvania companies since 2007, including 194 small businesses with fewer than 500 employees. Existing loan guarantees and commitments will stay in place, but the bank can't back any new business until Congress reauthorizes its charter.
Most commercial banks in the United States won't provide working capital loans to American exporters because the banks don't count exports as collateral, Dempsey said. But they will make those loans if they are guaranteed by the Ex-Im Bank.
Exports are critical to Aquatech's business, accounting for 40 percent of its annual revenue, which is between $150 million and $200 million, Sharma said.
The company has turned to the Ex-Im Bank to guarantee working capital loans provided by banks such as PNC or Citizens, which supported $368.2 million in contracts since 2007.
Aquatech, which has 250 employees in Western Pennsylvania and 600 worldwide, planned to seek additional Ex-Im backing later this year for projects to get started in the third or fourth quarter.
“If the charter has not been reauthorized then, at that point, we're sort of dead in the water with any type of expansion,” Sharma said. “It will dampen our ability to take that business.”
Large exporters have options, including going to the Ex-Im bank's counterparts in other countries where they have plants.
Westinghouse Electric Co. in Cranberry has access to the Ex-Im equivalent in Japan, where its parent Toshiba is based, said David Howell, senior vice president, operating plant business, at Westinghouse. The uncertainty in the United States won't prevent Westinghouse from building nuclear plants abroad, he said. But the jobs won't be coming to Cranberry.
“The challenge in the United States is, when that happens, they expect the products to come out of Japan,” Howell said, “shifting some of that work that we would do in the United States to other countries.”
Aquatech could turn to the export bank in Canada, where it has a subsidiary, to support new projects, Sharma said. But it would be a difficult decision, he said, forcing them to question whether the required adjustments would be worth it. It would be easier to have those project and engineering employees in Pennsylvania.
“Unfortunately the economics change,” he said. “That's the shame of the whole thing. Our center of gravity is in Canonsburg.”
Chris Fleisher is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or email@example.com.