Innovation did not usually come to mind, over the years, when talk turned to trade finance. It was a venerable, mostly unchanging, part of global commerce, with a centerpiece product, the letter of credit, that had origins in the European Renaissance. Its practice produced a mountain of paperwork, and its practitioners were sometimes called “guys with green eyeshades.”

But, obviously, times have changed. The field is being swiftly reshaped in multiple ways. The letter of credit’s market share is sinking, replaced by Internet-based payments systems, credit insurance, and the ability of global banks to finance and remove risk for exporters and importers in the same transactions.

Two recent trends within this mini-flood of change are worth noting. One is the growing roster of lenders helping small and mid-sized American exporters of machinery and equipment to close their deals. A few are banks, others are finance companies, and, since 2004, they have become prominent participants in Export-Import Bank guarantee and insurance programs.

The other trend is the expanding role of large finance companies in the convergence of international supply chain management and trade finance: logistics groups create in-house finance units, finance groups partner with logistics companies, and all work with data platforms that help parties to a transaction share information.

The March of Equipment Lenders

Ed Kostenski, President of Nationwide Equipment Company in Jacksonville, Florida, actively wholesales construction equipment to Africa with Ex-Im support.

The roster of U.S. lenders in “middle market” equipment exports has managed to keep growing since 2004, a watershed year, when at least six brand-new specialty export finance companies opened their doors for business. In 2006, still more banks and finance companies joined the crowd.

It’s not hard to figure out why. Machinery and equipment sectors are among the most globally competitive in the American economy, yet fewer banks are involved with mid-sized and smaller exporters in the business.

The innovative response shows the entrepreneurial spirit is alive and well in the lending arena, so when opportunities arise, know-how and capital manage to merge. And Ex-Im Bank programs are available, handily, to cover most of the repayment risk.

Take New Continent Finance in Miami, a 2004 entrant, launched by Gustavo Rosas and Oswaldo Jugo, trade finance veterans with FCIA Management (credit insurance), Ex-Im Bank, and Barclays Bank. In entrepreneurial mode, they had earlier established New Continent Suppliers to export heavy equipment and parts to Latin America and the Caribbean.

But, as a small company, they found “it is very hard to get bank support,” as Rosas puts it. Their response: “Create the answer for us, and other small exporters, by establishing a specialty finance company to be a lender under Ex-Im Bank’s insurance and guarantee programs.” They have been busy ever since.

Or, take WorldBusiness Capital, in Hartford, Connecticut, another 2004 entrant in Ex-Im Bank deals. Brett Silvers, chief executive, had earlier built First International Bank (Hartford) into the top ranking lender (number of transactions) in Ex-Im medium-term deals.

But, the bank was sold, and, a few years later, Silvers (who raised capital) set up the new finance company, which is also active in Overseas Private Investment Corporation small business projects, has a focus on Latin America and Eastern Europe.

The Class of 2006 also shows an entrepreneurial spirit of varying shapes and sizes.

Premier Business Bank, in Los Angeles, was founded in 2006 by a group of international bankers that decided to combine traditional local business lending (working capital, real estate) with trade finance as a leading product (and equipment export deals on a nationwide basis).

“Smaller companies just don’t get the international trade service from larger banks that we offer, so it’s a big opportunity,” said Michael Stoddard, executive vice president, international. “We bring big bank advisory expertise to smaller, mid-market firms, leading with our know-how, and then offering products.”

Commerce Bank, in Cherry Hill, New Jersey (Philadelphia suburb), one of the fastest-growing lenders in the country (its e-mail address identity is “the yes bank”) decided in 2006 to bulk up its trade banking. It hired five veteran practitioners in one swoop from another bank, to form one of the country’s most experienced equipment deals capability.

That, combined with a multi-state branch network and deep pockets, means a major new player, particularly in Ex-Im business. Know-how migrates.

And Northstar Trade Finance, in Vancouver, Canada, after a dozen years and C$1.6 billion of transactions, decided to export its successful model, opened offices in Houston and New York in 2005, began Ex-Im deals in 2006. It has substantial experience and local networks in its priority markets (Latin America, China, East Europe).

The Large Finance Companies

Scott Shepherd, president of Northstar Trade Finance

The big U.S. finance companies have had export-import operations for decades in a few cases, more recently in others, but the main trend is a move into savvy supply side chain strategies.

UPS Capital, finance arm of logistics giant United Parcel Service, was launched as recently as 1998, following quickly into trade finance in 2000. It is a high visibility example of the convergence of moving goods, funds, and information.

UPS, moving beyond package delivery to become a leading global logistics company, offers short-term trade payments, including letters of credit (its works with several banks), managing and discounting of trade receivables (it works with Factors Chain International, a global network), and its own version of an international “Collect on Delivery” or COD service.

And, it bought a bank in 2001, adding medium-term (and even long-term) finance to its portfolio, including a substantial Ex-Im Bank business. Plus, it has a sizable insurance brokerage operation in credit protection and cargo coverage.

GMAC’s Anthony Brown

GMAC Financial Services, with a new ownership structure, is now embarking on a sophisticated international strategy that is just beginning to unfold. The former General Motors finance arm was sold off (a 51 percent controlling interest) in late 2006 to a consortium led by Cerberus Capital Management, a private investment firm (other members: Citigroup, PNC Financial Services Group, and Japan’s Aozora Bank).

New ownership has improved the group’s credit rating, supported an expansion drive. GMAC’s Commercial Services division brought in trade finance veteran Anthony Brown in late 2005 to spearhead its international unit’s supply chain approach.

GMAC’s U.S. trade business is 80 percent import, 20 percent export. Its lending, mostly short-term factoring (paying receivables up front, collecting from buyers), makes active use of two global networks--Factors Chain International and International Factors Group—and credit insurance.

In the emerging strategy, GMAC is looking at activities “to make deals happen,” says Brown. These include global trade management platforms to facilitate transactions, partnering with a logistics company to offer buyers nearby warehouse inventories, and an early payment program that cuts supplier financing costs.

So, there you have two trends to watch: innovation in small business equipment lending, large finance company supply chain strategies. And, if we said it once, we’ll say it again: know-how travels.