A Guide to Financing an Export Business

Author: christinaricci

Globalization enables trading of goods, services, and currency between countries. Globalization enabled the rapid growth of the export industry of countries. But with increased trade also comes the risk of insolvency and default if foreign customers fail to pay on time. Commercial banks and the government insure exporter’s investment and bail them out if in case these companies are in financial trouble.

Export financing became popular at the same time with international exchange. Often misused synonymously with insurance or guarantee, this is a form of transaction between a financial institution and a firm beginning a business with foreign clients. Insurance or guarantee is another form of financing in that it secures the continuity of the business despite instability of the business with their clients. In other words, the financial institution insuring the exporter carries the risk for the exporter.

Through the Export-Import Bank of the United States, exporters can easily apply for loans in commercial banks. Although most commercial banks avoid complex international transaction, particularly financing both exporters and foreign buyers, Ex-Im bank remedies the problem by offering them insurance. One of the types of guarantees or financing that banks can offer exporters is working capital guarantee. It funds an exporters business in the beginning.

The exporter though needs to be insured by the Export-Import Bank of the United States to get approval of loan from any commercial bank. Ninety percent of the entire loan will be covered by the insurance, thus convincing the commercial bank about the stability of the deal. Nevertheless, this kind of loan is only short-term and should be repaid immediately when the trade is already on a stable ground.

With satisfying creditworthiness from foreign buyers and stability of the business’s stand in the market, an exporter can apply for long-term financing from commercial banks or private lenders. A loan guarantee provided by the Export-Import Bank of the United States can help in the instant approval of the loan. Eighty-five percent of the transaction will be covered by the insurance when a fifteen percent down payment is already made.

Pre-export credit is also a type of loan that a reputable exporter can apply for to cover capital of the business. Even before the exporter exports the goods to the foreign customers, he or she can take advantage of this form of finance of international trade. Repayment of the advances follows proceeds of the letter of credit.

Article Source: http://www.articlealley.com/http://christinaricci.articlealley.com/a-guide-to-financing-an-export-business-2342370.html

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