Many billions of dollars worth of goods and services are traded between almost every country in the world every day, and this trend is only likely to continue. This article covers some of the ways you can access financing for your new Import/Export business.
Pursue a standard bank loan. Before pitching to a loan officer, clearly think through and write out what you need financing for. Compose a comprehensive business plan listing your anticipated fixed and monthly expenses, along with your revenue projections over the next six months, one year, and five years. If you are an importer, gather detailed statistics on sales and market share of competing products, and be prepared to explain to lenders or investors why the product you're importing is superior to what's already available. Also provide information on how well the imported product has sold in overseas markets. If you're an exporter, conduct similar market research in the countries you would like to ship your products to. Make full use of country-specific experts in the Chamber of Commerce to provide statistical information and analysis on sales, market share, and other factors that are likely to affect the success of your product in a foreign marketplace.
Pursue vendor financing. This is particularly appropriate for importers. Provide your foreign supplier with an honest appraisal of market prospects for the product you are bringing in, as well as the risks and other uncertainties. It is in both your interests to be on the same page with respect to marketing, production, transportation, and distribution. See if you can get the supplier to allow you to store and market the first batch of products on a consignment basis, only paying them once you've successfully made sales. Keep inventory small to limit risk for all parties. Once the product has proved itself, and you've generated cash flow from the first series of sales, consider reverting to a more conventional payment model, such as a bank draft or letter of credit.
Get a loan from the Export-Import Bank. The ExIm Bank is a government-chartered enterprise that has been helping exporters access capital to fulfill foreign orders since 1934. Typically, the ExIm Bank only provides capital for orders worth $1 million or more, but they have increasingly scaled their operations down to support smaller exporters. In order to access capital from the Bank, you'll have to demonstrate firm orders for your products from a foreign client, typically a letter of credit or bank draft. The Bank would then provide you with a short-term loan to produce and ship your goods, and you would pay the Bank back once your client pays you.
Use factoring. Factoring is a method by which banks will pay you for your accounts receivable, and in exchange expect a discount of anywhere between 10 -- 20% off of what you would have been paid. This represents the service fee, and the premium they charge you for monetizing your receivables now, as well as accepting the possible default risk from your customers. For example, you fulfill an order and a customer now owes you $100,000 in six months. You take this to your bank, and they offer to buy this account receivable for $80,000, a 20% discount. Even though you'd make $20,000 more if you held the receivable yourself until collection, you decide that you need the money now, and agree to the terms.
The remainder of alternatives are those available to all small businesses, namely investment or loans from friends, family, or private venture funds. Private venture funds might be interested in either a long-term investment in your company, or might just provide short-term financing to complete the production, transportation, and distribution of a particular product. For instance, if you're importing goods with a total retail value of $150,000, at a cost of $50,000, a venture fund might provide you with a $50,000 loan at 10% interest. Or they might negotiate a deal whereby they won't charge you any interest, but will want to be paid 50-60% of the value of every sale. That would eat into your profit margin, but it would also significantly reduce your risk.
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