Small business owners are always on the lookout to expand their business. And for this, they engage in exporting their goods and services. This is a great way for small businesses in India to expand their customer base and increase revenue. By exporting their products and services, small businesses can tap into new markets and reach a wider audience.
Selling products and services in different countries makes small businesses less reliant, mitigates risks, and reduces the impact of economic downturns. But they may require additional finance for their export business. In such a scenario, Business Loans from Hero FinCorp can provide the necessary finance for export purposes.
This guide will provide a comprehensive overview of export finance, its types, and how we help. What is Export Finance?
Export finance is a type of funding that enables exporters to access working capital before they receive payment from their importer. For instance, when an importer and exporter agree on payment terms, the exporter ships the goods sold, and the payment is due for a specific period. During this period, the exporter may face cash flow challenges; we address this issue by providing the required export finance to support the business houses' daily business activities.
How Does Export Finance Work?
You have learnt that export finance helps exporters get working capital before they receive payment from their importer. There are two types of export finance you should know about to understand the working: Pre-shipment finance and Post-shipment finance. Let's take an example to understand this better. Suppose Company A wants to sell its goods to Company B, but they are located in different places and have never done business before. As a seller, Company A wants assurance for payment of goods, and as a buyer, Company B wants assurance for the quality of goods. However, Company A needs funds immediately to meet its business working capital requirements. So, Company A will issue a confirmed export order or request a Letter of Credit (LC) from the buyer. Then, Company A will produce the export order or LC to a lending institution requesting funds for an agreed interest. As an NBFC, we will give credit to Company A, keeping their margin along with interest, and recover it upon remittance of funds from the buyer after shipment.
Importance of Export Finance
Export finance refers to financial tools and products businesses use to facilitate international trade. It helps importers and exporters manage their transactions more efficiently. The benefits of export finance include the following:
- Easy access to short-term finance
- Allowing businesses to focus on growth activities
- The finance is usually secured against the goods or backed by an insurance policy, providing additional security for both parties.
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