In every business, whether it’s just starting out or have been running for a while now, risks are always a possibility. This is why it is important to have excellent risk management practices that can help reduce the chances of undesirable events from happening.
If you are managing or are engaged in international trading in importing or exporting products, being aware of and prepare different ways to mitigate them to be able to get the full advantage of the benefits. One of the best ways that you can avoid such risk is true import and export loans which will allow exporters to trade an open account terms without risk.
What are the benefits of import and export loans?
- Import loans can improve your cash flow by bridging the gap of paying and receiving payment from the items.
- With better payment terms, you can increase your bargaining powers with overseas suppliers.
- Easier and faster way of paying your suppliers, thereby having good business credit rating and reputation.
What are the types of import and export loans?
There are two types of import and export loans: loan against import and clean import loan. The latter is a type of loan that only relies on the supplier invoice and will not require you to pay on Documentary credit or Documentary Collection. This type of loan will provide the financing to enable you to pay for the imported goods which will also cover the period up to the point of sale.
Loan against import on the other hand will use the goods as collateral and are released to you under trust receipts. Under these circumstances the products or goods will serve as collateral which means they will belong to the bank until the time you pay back the loan.
While other loans depend on the company’s credit history before being approved, import and export loans are only based on the ordered goods or the proof of transaction. However, there will still be some other factors that the bank will consider before they allow a company to secure loans. This may include the following criteria:
- Should be in the business for at least a year
- Have done other or similar transactions in the past
- Credibility of the transaction
- Ability of the company to make good payments
There are other important factors that will affect the approval of your loan, however, you will generally have some leeway in negotiating the loan terms and fees. You will need to pay some due diligence to your lender. This will also serve you great in the future when you need to apply for another loan. Click here to learn more about risk management.