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How to Finance Your Export Sales

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How to Finance Your Export Sales

By Dennis Chrisbaum
Published: March 28, 2013 Updated: April 1, 2013

As I covered in my pervious blog,  How to Get Paid for Your Export Sales, each of the four international methods of payments which include cash-in-advance, letter-of-credit, documentary collections and open account can have an impact on your company’s financing needs when filling overseas orders. Those needs can be broken down into either pre-shipment or post-shipment working capital.

Pre-Shipment:  If you receive a purchase order from a foreign buyer, you will have a pre-shipment working capital need (the funds to hire labor, buy supplies and materials, etc., to produce the order):

  • unless you require cash-in-advance before you start production; and/or
  • you receive progress payments throughout the production cycle.

If your payment terms are simply cash-in-advance prior to shipment, or even a letter-of-credit that is payable upon shipment, you will still need to fund the entire pre-shipment production cycle. Will your order be produced in 15 or 30 days, or is it a customized piece of equipment that takes nine months to build? The pre-shipment working capital need could be substantial depending on the size of the order and the production cycle. 

Post-Shipment:  If you don’t get paid upon shipment, you will need to carry accounts receivable on your books. Maybe you have enough working capital to produce a short production cycle order, but you have to offer 90-day terms to the buyer in order to secure the contract.  You will need to keep your business moving during that time, which will require working capital to support the foreign A/R. 

You might be able to factor the accounts receivable, or you could insure them through a private insurance company or the Export-Import Bank of the U.S. which will move the risk from what may be an unknown foreign buyer to the U.S. government or larger insurer, allowing you to borrow against the insured overseas A/R.

How can you finance your pre-shipment and/or post-shipment export working capital needs?  The SBA has three loan programs that may work for you:

  • Export Express has a $500,000 maximum and is ideal for new exporters or those with relatively small orders;
  • Export Working Capital Program has a $5,000,000 maximum which may only be used to finance export transactions—from purchase order to collections; and
  • CAPlines has a $5,000,000 maximum which is a revolving line of credit that can support both domestic A/R and insured foreign A/R. 

Visit www.sba.gov/oit for a list of lenders active in these programs.  You also will find a listing for SBA’s trade finance specialists located in 19 U.S. Export Assistance Centers across the country who can provide additional information on export financing questions.

About the Author:

Comments:

My company is Small Business manufacturing medical devices which are not registered with FDA yet, however we do have FDA permission to manufacture in USA for export only; we are approved in about 100 countries and all our sales are international. Company is in business for over 7 years, sales grows at about 20% year by year. To grow our export sales we applied for $350K in SBA Export Financing and our application was denied because one of the minor partners has a high net worth, violating "owner resource utilization rule". I am a majority owner (70%) and do not have sufficient resources at my disposal. At the same time I do not feel comfortable asking my partner, who is 70 and already helped me with building the company, for any more monetary contribution to this business. As a result we do not have enough capital to manufacture next production lot. Our bank is not interested to finance export related business, we can not not factor in inventory, borrow against receivables etc. We have strong international competition from Spanish, Korean and Japanese manufacturers who are very active on the international markets. "Alternative finance" offers financing at about 60% annual interest rate. Basically, we are thinking about shutting down this business in US and possibly relocating it to another country. Is there anybody in US Government who may care about situation like ours?
At my previous bank, we were very active in SBA Export Express and SBA Export Working Capital Programs. It is important to talk with a knowledgeable lender about these programs; the best place to start is talk to bankers in the international divisions of US banks. Also, check out SBA export lender lists or look at press releases for SBA "Export Lender of the Year" awards to help find contact information for individual bankers.
This is excellent information on getting paid properly. I only use cash-in-advance in my business dealings, but it is nice to know their are other options out their, specifically for exporters.

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