Trade and Export Finance – How to Qualify for Capital Financing

by

Sarah Miller

It is every trade company’s aim to expand their business internationally and explore new markets. While this move takes a lot of planning and cash in order to make it a successful venture, it should not hinder you from going through with your plans. There are banks that could help you with your cash flow, as well as do risk management if your company needs it. Assuming that the board of directors of the company has given the go signal to expand the company’s market and you need capital financing, how would you qualify? Trade and export finance from banks is not as tricky as you may think.  

What is export working capital financing?

Export working capital financing is simply finance that is provided by a commercial bank in order to support an export company with their export sales. The funds could be used in several ways such as acquiring goods for exporting as well as the services needed. It could also be used to offer credit terms to customers. Individual transactions normally have a one year term and a general facility’s term could be extended up to three years.

How does your company qualify for financing?

There are three things that an exporter needs to demonstrate in order to qualify for export working capital financing.

1. The exporter needs to demonstrate profitability. The profit is what’s left of the revenue of a company after paying all the expenses related to the export business (i.e. goods and services).
2. The exporter should demonstrate that there is a need for the facility.
3. There should be a viable transaction in place (export deal). An export deal will show that there is profit that is going to be made and the risk of giving finance is lower.

The commercial bank will assess the risk and may ask for security. Normally, there will be a charge on the company’s assets, but there are cases where a personal guarantee will suffice.

There are two types of export working capital finance that are available. One is the Transaction Specific and the other is the Revolving Credit. Transaction Specific financing is short-term and it covers an export order that is large. The rates of the interest are normally fixed and the term of the loan is from three to 12 months. The Revolving Credit financing, on the other hand, is more suited for export companies that do regular export deals.

About the author: Sarah Miller is a business consultant by profession and a content creator, writer and blogger by passion. Having been exposed to the different aspects and faces of businesses, she frequently does research on useful information regarding the different methods and techniques to further improve business marketing, sales, performance and shares her passion of business management through blog/content writing.

The opinions expressed by guest bloggers do not automatically reflect the views of the Global Research Institute of International Trade (GRIIT).

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