How Import and Export Loans Can Help Your Small Business

Does your small business import goods from overseas, or export products to other countries? If so, you could benefit from financing through import and export loans. Import and export loans use the goods being shipped - or proof of the transaction - as the collateral for the loan. The loans provide working capital for your business.

Import and export loans benefit your small business in several ways:

• They improve your cash flow by bridging the gap between the time when you must pay for imported goods and the time when you receive payment for selling them.
• They enhance your bargaining power with overseas suppliers, because you're able to agree to faster payment terms.
• They enable you to pay suppliers promptly, building your business credit rating and reputation.

Types of Import and Export Loans

There are two kinds of import and export loans.

1. Loan Against Import: 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 Against Import. This loan provides you with financing to pay for the goods being imported; the goods themselves are used as collateral. The goods are released to you under trust receipts, which means they belong to the bank until you pay back the loan. (However, they can be used for manufacturing before the loan is repaid.)

2. Clean Import Loan: This type of loan does not require that you pay on Documentary Credit or Documentary Collection terms. It is made based solely on the supplier invoice.

Getting an Import or Export Loan

In general, import and export loans are loans based on the goods being delivered and proof of the transaction agreement. Because the loans are based on transactions, the lender will generally place less importance on your business's credit history when considering your loan application. However, the lender will want to see that you have been in business for at least a year and have made other, similar transactions in the past.

The credibility of the specific transaction, and the ability of the receiving company to make good on payments, are also 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.

Like other types of business loans, you will generally have some leeway in negotiating loan terms and fees. Loan terms will include a repayment schedule for the loan and the interest rate. Be sure to perform some due diligence on the lender you choose. When handled properly, an import or export loan can provide the working capital you need to keep your business going and growing.