Kwaplah International Boosted by Export Funding Program
Kwaplah International Boosted by Export Funding Program
by Courtney Sherwood
Sherlock Mahn had almost all the pieces in place when he quit his day job to run Kwaplah International Inc. full time.
The Corvallis, Oregon, company was credentialed to procure goods for the United Nations, World Bank and U.S. Agency for International Development. Mahn had secured suppliers of everything from pencils to medical equipment and had established shipping protocols to even remote African destinations.
Just one thing was missing: Capital.
Kwaplah would have to pay suppliers upfront and then wait as long as six months to be compensated by international agencies. Until he could secure a loan to provide that upfront capital, Mahn could not bid on any major contracts.
So in 2004, Mahn turned to the U.S. Small Business Administration's Export Working Capital Program, which helps companies like Kwaplah overcome such hurdles.
"Large banks have staff who understand export financing, but generally only work with much larger businesses," says Inga Fisher Williams, Oregon regional manager of the SBA Export Solutions Group."Community lenders are generally more willing to make loans to small companies, but these banks typically do not have international expertise on their staff. That's where I come in."
Though the SBA does not lend directly to businesses, it does provide banks with a safety net. Its Working Capital Program guarantees up to 90 percent of the export loans, which are $2 million or less.
SBA also helps banks and businesses understand the risks associated with export loans.
Many exporters need help determining how to enter a foreign market, how to get products through customs and which currency to accept for payment. Collecting an unpaid debt is difficult and sometimes impossible across international borders, so companies need to develop credit protection policies as well.
The SBA Export Solutions Group provides advice in all these areas, which must be considered before a company can obtain a loan.
Kwaplah planned to sell to well-established international institutions and to deal in U.S. dollars, which eliminated much of the risk involved in exporting.
After Fisher Williams introduced lenders at West Coast Bank in Lake Oswego, Oregon, to the Export Working Capital Program, the bank agreed in 2004 to extend Kwaplah a $250,000 line of credit. A year later, it raised the credit line to $1 million.
With money to procure supplies, Mahn successfully bid on a series of U.N. and World Bank contracts. In 2005, his first full year running Kwaplah full time, revenue reached $3.2 million. Kwaplah grew to eight employees, as well as a number of contracted representatives across Africa, where most of its goods are shipped.
Mahn, a Liberian-born U.S. citizen, was ecstatic. He had founded the company in 1993, while studying at Oregon State University, because he believed he could build a profitable company that would make a positive difference in the world and in particular in Africa.
"Kwaplah" means "all of us" in Liberian vernacular and refers to all the people involved in the fight against poverty.
For a decade, Mahn had learned the ins and outs of the procurement business but had no money to bid on major contracts. Now his patience seemed to be paying off.
Strong revenue in 2005 and 2006 won the company recognition. In 2007, ThinkGlobal Inc., a publishing company that produces the U.S. Department of Commerce's export promotion magazine, named it an Exporter of the Year.
Since then, however, a cash crunch has constrained growth. A major procurement contract with the U.N., which Mahn thought would boost growth, has instead held the company back.
The U.N. can take months to pay its suppliers, leaving Kwaplah short on cash and unable to bid on new opportunities for months at a time.
Revenue in 2009 dwindled to less than $2.1 million.
Kwaplah has met all the terms of its loan, Mahn says, and last year asked to increase its credit limit to the full $2 million allowed under the Export Working Capital Program guarantees.
West Coast Bank is facing its own capital crunch, however, and has reduced overall business lending under orders from the Federal Deposit Insurance Corp. and Federal Reserve Bank. It renewed Kwaplah's existing credit line but did not extend it.
"Last year was a very, very difficult year for the whole finance system and especially for small-business exporter credits," Fisher Williams says.
"Nationally, we saw some companies' lines of credit cut and some canceled, as banks tried to shed exposure to risk."
Credit opportunities are slowly improving, and Fisher Williams says she hopes Kwaplah has more success this year.
Mahn, meanwhile, is optimistic that the business has survived the worst.
"After struggling through 2009, we managed to reverse our revenue trend," he says. "But if we do not improve our working-capital situation, it could erode our ability to deliver on time."
He estimates that with $4 million in working capital, he could bring revenue up to $12 million to $15 million within two years. Without new capital, "Things will be flat at best."
This year, Mahn plans to again seek an expansion of the credit obtained through the Export Working Capital Program. He is also going to seek alternative funding sources.
"If things do not work out with banks, we will look at bringing a private investor in to share in ownership and profits," Mahn says. "The business model is proven, and I want to grow this business."
May 15, 2010
Picture: Mr. Sherlock Mahn in his office at the corporate headquarters located in Corvallis, Oregon, USA.