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Published on : 01 Jan 2018
This quick guide to export finance is part of the Shipa Freight Knowledge Series for small businesses.
Export finance is a type of trade finance that helps businesses conduct international trade easily and securely. Export finance includes loans to cover the cost of producing and shipping goods, and insurance policies and bank guarantees that ensure a company is paid for the goods it’s exporting
Export finance can help you cover upfront costs, offer more competitive payment terms to your customers, and receive prompter payment for completed orders. It can also help you mitigate some of the risks of exporting.
A trade loan or pre-shipment finance is short-term working capital that can cover the costs of producing and shipping a product. The lender releases the funds once you have a confirmed order, and you repay the loan as soon as your customer pays you.
Trade discounting or export factoring is post-export finance that releases the money that a customer owes you when your goods are shipped. It’s helpful if you can’t afford a delay in payment, and it means you can offer your buyer extended credit.
Export documentary collections allow you to keep control of your goods until the buyer agrees to pay. You ship the goods and present your shipping documents and payment instructions to your bank. The documents are then sent to the buyer’s bank, and are only released once the buyer pays or agrees a payment date.
Export letters of credit cover your trade risk by guaranteeing payment before you commit to sending the goods. The buyer’s bank provides an export letter of credit, promising that to pay on behalf of its client as long as shipping documents are presented and terms are met.
Guarantees and bonds help you mitigate the risk of failed payments. The bank commits to make the payment, as long as the terms of the bond or guarantee are met, meaning that you can receive financial compensation if your customer fails to pay for a product.
Export finance is provided by a range of organizations, including banks, trade-finance agencies and other government programs, and alternative lenders.
It can be difficult for small companies to access trade finance products from banks, so government departments can help to bridge the gap.
UK Export Finance (UKEF) is a British government department that works with private credit insurers and lenders to help UK companies access export finance, including loans, guarantees and insurance policies. UK companies that have been trading for under two years can also apply for a government-backed Start Up loan.
In the US, the Export-Import Bank of the United States (Ex-Im) is a federal agency that provides trade finance solutions to US exporters that would otherwise struggle to secure finance.
India also has an Export-Import Bank, established by the government to provide a range of products and services to help SMEs with their export operations.
If you’re based in a different region, check whether there’s any trade finance help available from your government.
There’s also an increasing number of online finance platforms and alternative lenders that provide export finance to SMEs. The British government’s Exporting is GREAT website has a useful list for UK-based companies.