What Are Import-and-Export Loans?

Businesses that import and export goods can benefit from financing

through what are known as import and export loans. Such loans use the goods being shipped — or proof of the transaction — as the loan collateral. An import and export loan can help your business improve its cash flow as well as enhance its bargaining power with overseas suppliers.

If you trade on Documentary Credit or Documentary Collection Terms, or purchase goods without the use of trade instruments, you can apply for a loan known as a Loan Against Import (LAI). This loan provides the borrower with financing to pay for the goods being imported. Such prompt payment helps you to maintain good payment terms and enhance your business credit rating. The collateral for the loan are goods themselves, which take time to be shipped to their location and are then held as new inventory before being sold or used.

The term of an LAI loan is essentially the time from receipt of the goods until the time when they are ready to be sold, since the lender owns the goods until the loan is repaid. Trust receipts are released to the borrower, which mean that the goods can be used for manufacturing, but may not be sold while they remain in the possession of the lender.

The second type of import loan, known as a Clean Import Loan, is a loan based solely on the supplier invoice. This type of loan does not require that you pay on Documentary Credit or Documentary Collection Terms.

The benefit of a Clean Import Loan is that it provides a business owner with the money to pay suppliers without having to wait to sell the merchandise first. This can be a huge benefit, because most shippers do not want to wait for your company to sell the goods before they receive payment for them.

In general, import and export loans are loans based on the goods being delivered and proof of the transaction agreement. Since the goods are already shipped, the loans are unsecured, meaning the business owner must provide a personal guarantee. The goal of such loans is to help businesses maintain cash flow and continue to remain active in international trading while waiting for payment, particularly when buyers have requested lengthy credit periods.

Because the loans are based on transactions, the lender places less importance on the credit history of the business when making the decision to process such a term loan. However, the lender will want to see that the borrower has been in business for at least a year and has made other similar transactions. The credibility of the specific transaction, and the ability of the receiving company to make good on payments, are factored into the equation, since the loan is financing the receivables before they are collected. The most important documents the lender will need to review are the contract and/or other documentation providing proof of the transaction, as well as the details of the specific transaction.

Not unlike other loans, the terms will include a payback time for the loan, and interest will be charged. Normally, loan terms and fees can be negotiated. In addition, business owners should be sure to perform some due diligence on the lender they have chosen.