How can I Finance my Export Business?


Stable and healthy export financing is imperative for maintaining an export business as you continue to grow your business.  The exporter may need to either look for creative financial sources or follow best practices. In the former option, the exporter could easily place a request for personal loan at a local banking institution. However, statistics have proven that most new exporters are financially unstable; therefore, banking institutions often increase the interest rates on these loans in order to offset the risk.    The cost of a loan is not only financial; it may also bring an unexpected amount of emotional stress.

Where can I find Export Financing assistance?

Here are some ideas that may prove to be better options for sustaining a healthy export business.

Self-Financing

The best and most cost-effective option for financing your exports comes from you. If you’re able to finance your shipments you will reap a higher return on your investment. Although this is be a limiting factor for most exporters because they quickly outgrow their personal ability to finance their exports.

Family and Friends Financing

Many small and first-time exporters may turn to their friends and family as a resource for financing. This is a double-edged sword. Although the ability to receive money quickly and easily makes this a good option (minimal paperwork, qualification and time), you will also have the added stress of having to share your business process with family/friends members, since they are now also funding your business.

The Small Business Administration/Import Export Bank

You may always try seeking the assistance from The Small Business Administration, Export Assistance Program and the Import Export Bank. Through their programs, endless small medium sector enterprise solutions have received ideal support as they start their export business. In a stark difference with the bank loan products, the agency offers loans on your receivables. The exporter will have to consider the receivables as the collateral. The loan therefore, is easily cleared once the buyer pays your receivables. Hence, a large number of the exporters prefer to use this system instead of bank loan products.

There are few basic disadvantages of taking a loan against your receivables. The first disadvantage is the amount of financial planning involved in setting up the process of selling off the receivables. It will require a certain amount of formalities from the seller as well as the buyer in some instances. Some exporters find the option workable.

Additional Collateral for Receivables

As an extension of the previous option, the exporter might consider taking a loan against their receivables by adding security to the loan (which usually lowers the cost of the loan). This is a more advantageous and efficient option, where the loan is being offered against the receivable products with a due strengthening by the letters of credit. In the system, the seller receives more advantage if he possesses a healthy loan history.

Third Party Loan

An additional option, the exporter may look towards the third party loan providers. We need to point out that the option may be highly expensive for the exporters. In detail, the third party loan providers arrange the finance from various sources, including international sources. Importantly, the lender wants to reap the maximum profit by utilizing that money in local export industry environment. The benefit to the exporter is that they will provide the loan when other sources, such as your local bank, may not.

Credit Card Financing

Individual and micro exporters have used their personal and business credit cards to finance their exports. This is an excellent option early on in the process. When orders are small and your customer pays either upfront or at delivery, you will benefit from using your credit card by floating your receivables for 30 days on your credit card, receiving points (for either cash back or travel) and growing your credit rating.  It is important to focus on ensuring that you pay the card right away.  Credit card interest is the highest interest available and can quickly and easily wipeout any profits and even make you lose money if not used properly.

Financing is a very important part of your business and should be evolving as your business grows. What works for a micro exporter will not work for a large exporter.  Having multiple options available, will allow you to grow your business quickly and increase your profits as you grow.

 

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