Kim Glas, deputy assistant secretary for textiles and apparel at the Commerce Department, said, “I’ve heard from the many industry folks that during this economic downturn they’ve had significant problems finding financing. I know [Commerce] Secretary [Gary] Locke has made it a priority to figure out how to help small and medium-size manufacturers find the financing they need for long-term viability.”

Brad Chastain, corporate credit manager at Mount Vernon Mills, a key producer of denim apparel fabrics and pocketing materials, said the company’s exports to Central America have dropped because of the credit squeeze, an overall decline in business, and an unstable retail environment. Chastain said the primary problem is with his foreign customers that can’t get financing from their banks. Those institutions are unable to securing funds from U.S. banks.

“What we have to do is make the sale to the offshore company, and the credit risk is a big part of the problem,” Chastain said. “We’re oftentimes dealing with companies that are undercapitalized or don’t have a lot of financial wherewithal…. They have difficulty getting working capital in place to buy our fabrics and make garments and sell back to U.S. apparel companies.”

Mount Vernon has an insurance policy with the Export-Import Bank of the U.S., but it does not cover certain countries, it has a deductible, and it only extends to 90 percent of losses. Chastain said there are significant risks for U.S. mills to open credit terms and “go out on a limb and make large sales to Central American companies because there is a lot of default history there.”

He said they are not willing to take the credit risk if they can’t get Export-Import bank insurance.

Werner Bieri, president and chief executive officer of Buhler Quality Yarns Corp., which produces supima cotton yarn and exports 35 to 40 percent of sales to Honduras, El Salvador, and Guatemala, said, “banks have gotten a lot more leery to lend to the industry,” adding the biggest impact has been on his accounts receivables financing, which has increased roughly 50 percent.

“That means we need higher credit lines to do business, and we have asked for an increase of credit lines but they have denied us,” Bieri said.

The credit lines for Buhler’s customers in Central America have been cut, in addition to U.S. retailers paying slower, leading to losses for his company.

Credit problems are plaguing the entire supply chain from cotton producers to retailers.

“From a commonsense standpoint, we’re interested in spinners having a strong export market so there is a stronger demand for cotton,” said John Maguire, Washington representative for the National Cotton Council. “If we don’t have spinners to sell to in the long term, we’ll have serious problems, so we are in a supportive role.”