Guide to Export Financing!

Export financing involves loans made for the shipping of products outside a country or region. The financing of export sales concerns arrangements to get payment for the goods shipped or the services pro-vided to another country. If done right, it can be a very profitable venture.

Why do we need finance?

The ultimate goal is to decrease your startup and increase your company’s profitability. Exporting can be a complicated and expensive process since it requires time, effective planning, research, skilled staff, international travel, and overall good management.  However, on the bright side you can obtain a higher price for your products being exported, but it can take 30, 60 or 90 days to retrieve your cash, which can be detrimental, especially when companies don’t have a steady cash flow.

What are the different types of financing available?

There are several different types of financing available. It can be from a bank, credit union, grant application scheme, personal savings and angel investor (rich individual who provides capital for business startup).

What should I consider before seeking financing?

Some questions to ask before seeking financing are:

•Do you have a written business plan?

•How much money do you need to borrow?

•How do you plan to use the money?

•How long will it take you to repay the loan?

•What amount can you reasonably repay towards the loan?

•Do you have any type of guarantee or collateral for the loan?

•Are you comfortable with the interest rates?

•Will the loan be insured?

How to Finance an Export Transaction?

As an Exporter you ultimately want to get paid at the earliest, while importers usually prefer to delay payment until they have received or resold the goods. Attractive payment terms are often necessary to make a sale. You should be aware of the many financing options open to you so that you choose the most acceptable one to both the buyer and the seller. The following factors are important to consider in making decisions about financing:

Favorable payment terms make a product more competitive. If the competition offers better terms and has a similar product, a sale can be lost. In other cases, the buyer may have preference for buying from a particular exporter, but might buy your product because of shorter or more secure credit terms.

Interest rates and fees vary from country to country so you may want to do your research on this. Where you can expect to assume some or all of the financing costs, the effect on price and profit should be well understood before a pro forma invoice is submitted to your buyer.

The risks associated with financing the transaction. The riskier the transaction, the harder and more costly it will be to finance. The political and economic stability of the buyer’s country can also be an issue. To provide financing for either accounts receivable or the production or purchase of the product for sale, the lender may require the most secure methods of payment, a letter of credit (possibly confirmed), or export credit insurance or guarantee.

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For more information, kindly contact the Business & Investment Facilitation Unit at [email protected] or at 822-0175.

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