Exporting provides an equal number of opportunities and
challenges for businesses. Good financial practices help exporters avoid
the pitfalls of a market economy and set them on a path to growth. This
article discusses best exporting financial practices and how you can
source funds for your export business.
Loans:
Getting loans in the export business can be difficult, since banks do not accept foreign-based assets as collateral and are generally suspicious of any foreign business entity that is not a well-known company. Small businesses withstand the worst of this suspicion. The Small Business Administration Export Assistance Program is one that is helpful to many small businesses looking to enter the export market. You can also approach private lenders and banks. Ex-Im Bank, for example, offers export loans to companies with less than 500 employees. Most US government agencies do not provide loans to exporters; they simply help exporters obtain loans from other sources.
Loans on Receivables:
Consider using receivables as collateral. These kinds of loans are sanctioned more quickly, so they are ideal for long-term loans when you need funds urgently. Many banks opt for recourse lending when extending loans against receivable, as refund is guaranteed even if the banks cannot collect money from offshore entities.
Disadvantage of Recourse Loans:
If you want to sell off the receivables to make them disappear from your balance sheets, you need to do a lot of financial planning beforehand. You cannot dispose the receivables without certain formalities. Therefore, if you want to sell quickly, then a recourse loan is not a good idea.
Conduit:
This option is not available to small businesses and exporters; however, it would be relevant to mention it here. This loan is extended against receivables that have been strengthened by letters of credit from the exporting company showing a good loan history.
Letter of Credit:
Used by many small exporters, this arrangement allows you to take a loan against a guarantee from the overseas customer to whom the goods are being exported.
Third-Party Lenders:
Many small exporters have been bailed out of difficult situations by third-party lenders. The third-party lenders arrange finances in other countries and know how to deal in local market conditions. This cuts down on the cost of approaching foreign banks on your own, and you get specialized services from companies that know the market.
The above were just a few of the export financing practices and sources of funds for your small business. You can also look for other options at banks, Small Business Administrations offices, or state export promotion office. You can consider some export finance options like forfeiting, or international factoring. There are many finance options out there for exporters, and you may need to consult a small business advisor to find all possible sources of funds for your export business.
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Loans:
Getting loans in the export business can be difficult, since banks do not accept foreign-based assets as collateral and are generally suspicious of any foreign business entity that is not a well-known company. Small businesses withstand the worst of this suspicion. The Small Business Administration Export Assistance Program is one that is helpful to many small businesses looking to enter the export market. You can also approach private lenders and banks. Ex-Im Bank, for example, offers export loans to companies with less than 500 employees. Most US government agencies do not provide loans to exporters; they simply help exporters obtain loans from other sources.
Loans on Receivables:
Consider using receivables as collateral. These kinds of loans are sanctioned more quickly, so they are ideal for long-term loans when you need funds urgently. Many banks opt for recourse lending when extending loans against receivable, as refund is guaranteed even if the banks cannot collect money from offshore entities.
Disadvantage of Recourse Loans:
If you want to sell off the receivables to make them disappear from your balance sheets, you need to do a lot of financial planning beforehand. You cannot dispose the receivables without certain formalities. Therefore, if you want to sell quickly, then a recourse loan is not a good idea.
Conduit:
This option is not available to small businesses and exporters; however, it would be relevant to mention it here. This loan is extended against receivables that have been strengthened by letters of credit from the exporting company showing a good loan history.
Letter of Credit:
Used by many small exporters, this arrangement allows you to take a loan against a guarantee from the overseas customer to whom the goods are being exported.
Third-Party Lenders:
Many small exporters have been bailed out of difficult situations by third-party lenders. The third-party lenders arrange finances in other countries and know how to deal in local market conditions. This cuts down on the cost of approaching foreign banks on your own, and you get specialized services from companies that know the market.
The above were just a few of the export financing practices and sources of funds for your small business. You can also look for other options at banks, Small Business Administrations offices, or state export promotion office. You can consider some export finance options like forfeiting, or international factoring. There are many finance options out there for exporters, and you may need to consult a small business advisor to find all possible sources of funds for your export business.
