KVR Trade Finance: Miami firm aids small and mid-sized businesses in Latin America and the Caribbean
07/13/2014 7:00 PM
07/11/2014 9:38 PM
KVR Trade Finance, a small Miami firm that provides loans to small and mid-sized businesses in Latin America and the Caribbean, is helping to finance the operations of a company in Kingston, Jamaica, that imports, manufactures and distributes construction materials. It also loans money to a scrap metal processor in Guatemala which needs to finance imports from Panama, an oil products distributor in Mexico and a Mexican confection company that requires credit to import raw materials from the United States.
Founded in 2011, KVR makes loans to businesses that usually can’t obtain financing from their local banks.
“We are targeting this niche market because many good companies are underserved by local banks,” said James Varnadoe, managing director of KVR and one of the founders. “U.S. banks often aren’t comfortable about working with small companies in Latin America, and the Caribbean, and local banks [in the region] just serve blue-chip companies.”
A Miami-based trade expert believes KVR is providing an important service for small and medium companies (SMEs) in the region. “They serve a space that is in dire need of working capital and trade finance,” said Gary Goldfarb, chief strategy officer at the Miami’s Interport Group, which works in consulting, commerce, customs brokerage, logistics and other related sectors. “Miami is the gateway to Latin America, and we are mostly served by SMEs, so this seems like a perfect fit,” said Goldfarb, who has more than 35 years of experience in international trade and logistics.
In both domestic and international trade, sellers want their customers to pay as quickly as possible, while buyers prefers longer terms to receive and resell the goods. This generates the need for financing.
Varnadoe, an industrial engineer who has a law degree from the University of Miami, said he and the main investors in KVR saw an opportunity to provide financing to many SMEs that had solid businesses but were ignored by the big banks. Technically, KVR is somewhere “between a private equity fund and a hedge fund,” said Varnadoe, who previously worked for the Reynolds Metals Co. and as a consultant for Arthur D. Little, a management consulting firm.
“We’re not a bank, but we act like a bank,” he said. “A lack of trade financing and loans for working capital hinder trade and domestic business for thousands of small companies.”
Last year, KVR disbursed $25 million in credits to its clients, Varnadoe said. Typically, the company offers clients short-term lines of credit between $2.5 million and $5 million to finance working capital, exports and imports. These lines, covering periods from 30 to 180 days, are renewable.
“We offer credit lines in eight Latin American and Caribbean countries now, especially in Mexico, said Alexander Ondarza, the portfolio manager at KVR who has more than 26 years of experience in trade finance. “And we’re planning to expand. There are many good opportunities for us in the region.”
Interest rates charged by KVR are higher than commercial bank rates to compensate for the higher loan risk. KVR did not want to reveal the rates it charges for competitive reasons.
KVR has five full-time employees in Miami, and has representatives in Latin America, the Caribbean and other parts of the U.S.
The company doesn’t use advertising. Its employees travel to Latin America and the Caribbean to find new clients, and rely on referrals from contacts to develop new business.
For example, Grupo Gasmart, a client based in Tiajuana, Mexico, found out about the KVR through one of the Miami firm’s representatives in Mexico two years ago and has been able to expand thanks to KVR loans.
Grupo Gasmart owns 96 service stations in six Mexican states and is planning to open more in another state, according to the company’s CFO, Alejandro Marroquín. It buys petroleum products from Mexico’s national oil company, Pemex, to sell at its outlets, imports capital equipment for its operations from the U.S. and needs credit to cover these operating costs.
“KVR provides us with the working capital we need,” Marroquín said. “This allows us to buy products from Pemex, maintain adequate inventory and meet the needs of our customers,” he added. KVR financing also helps the company when it needs to import pumps and other equipment from the U.S. for its stations, since equipment suppliers typically want to be paid in 30 days.
Gasmart had other financing sources available in Mexico and the U.S., Marroquín said, “but we decided on KVR because we believed they offered us the best option. They’ve helped us a great deal to carry on and develop our business.”
Private investors from Canada provided the seed money to get KVR started. Today it is owned by investors from Canada and the United States. The name KVR came from the name of a family firm related to one of the company’s current investors, Varnadoe said.
KVR uses it own resources to provide credits and works with banks who share part of the loans and the risk.
Aside from charging clients higher interest rates than commercial banks, KVR strictly evaluates all loan applications and client risk just like a bank, including audited year-end and interim financial statements, financial statements from the company’s owner(s), financial projections and cash flow statements, proof of 50 percent U.S. content (for companies importing products from the United States with support from the U.S. Export-Import Bank), purchase orders for domestic or international merchandise, trade references and other documents.
It also works with the U.S. Export-Import Bank, which provides a variety of services, including insurance covering part of the cost of exports with minimum U.S. content. KVR also obtains private insurance to cover the risk of its credits. KVR’s customers must pay for the insurance.
“We’re a tiny fund working in trade finance, but we hope to attract other similar funds to Miami,” Varnadoe said. “Even though we’re small, we are helping companies in the region import, export and expand their businesses. And when these companies need to import from the U.S., American businesses also grow.”
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