The Essentials of Export Financing: International Finance Options

Export Financing

When export financing is mentioned, many people automatically think of exports. Indeed export financing can be a great option for businesses looking to export their products and services. But export financing isn’t just about exporting; it’s also about imports! Understanding the essentials of export financing will help you choose the best international finance options for your business and ensure that you get the most out of your money.

What is export financing and how does it work

Export financing is the process that helps companies sell goods overseas by providing working capital. As a rule, export financing includes loans with longer repayment timetables, usually between 18-36 months. It’s vital to have an excellent credit rating if you’re looking for foreign export financing, as the tougher requirements financial institutions have for receiving this type of loan are among the reasons why it can be difficult to get export finance domestically. To grow and succeed in today’s global economy, international trade has become one of the main ways that many large companies expand their operations – even those seeking nationally syndicated credits may find that they need international fashion designs or branding expertise at some point in order to break into corners of the global economy their country hasn’t tapped yet.

How to find a bank that offers export financing

Export financing is a specialized business with a lot of different terms and regulations. A good first step is to talk with your bank about the international trade services they offer. Even if this service doesn’t exist you may be able to get referrals from other banks that have that type of export financing department. After you have compiled a list of potential candidates, research what types of export loans they offer, the benefits those packages provide for your particular needs, and the costs associated with them. With this information in hand, schedule a meeting at one or more banks where one or more bankers can walk through these options with you and answer any questions you may have along the way.

The benefits of export financing

If you are a business owner or even a manufacturing company, export financing might be worth your while. Manufacturing companies who want to invest in foreign manufacture often take out financing from local banks to help them fund the demands.

Export financing is beneficial because it helps to reduce the sizeable lump sum that may have been needed for up-front investments and it also offers very competitive rates. These loans are designed with small monthly payments to make them manageable for borrowers with tight budgets. For those with considerable cash flow, then this is not necessary but these loans serve an important purpose in aiding manufacturers of all sizes through their start-up phase by helping them achieve project targets faster than they could on their own. 

Export financing options for different types of businesses, including small businesses and large enterprises

Small businesses involve less risk, so funding is often cheaper and easier to get, but there are specific options for larger enterprises too. For example, the lender may require an equity interest in the company or collateral security of some kind. Loan terms may be shorter unless a long-term loan is needed. Examples of loans that exist for small businesses include lines of credit, merchant cash advances (MCA), asset-based lending (ABL), equipment leasing, factoring, and invoice discounting. For large enterprises, there are different types of financing options including debt financing, bank loans known as senior debt financing with junior debt financing being more expensive investments.

The two main types of export financing are trade finance and capital market finance

The most common type of financing is by far trade finance. Countries all around the world rely on this type of financing to help their trading partners purchase inventories or to cover payments for finished products.

The second largest investment option is capital market investing, where investors provide money for someone else to do business with it – sort of like an “investment loan”. This form of financing typically goes towards buying assets so they can produce more income.

Warnings about export financing without the right type of finance in place 

It is important to carefully read and fully understand any kind of export financing that you do. Without the right type of finance in place, then you may be taking on interest rates that are not aligned with your specific goals. Make sure that there is enough detail in the contract for this purpose before signing anything.

Take these steps to refine your plan and make sure everything is set up for success: 

1) Gather detailed information about what types of loan products suit your needs and which don’t; 

2) Consult a qualified professional who has experience in this area; 

3) Finalize a debt counselor agreement with them; 4) Listen carefully to what they say (and follow it!).


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