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.
Types of Export Finance
There are different types of export finance available to small businesses in India. Here are some of the most common types:
Pre-Shipment Finance:
- Provided to purchase of raw materials and processed them into finished products
- Available when exporters need funds before the shipment of goods
- A packing credit loan can be availed against the export order received from the importer
Post-Shipment Finance:
- Provided post shipment of products and after invoice raised from the importer to make payment, which may take 3-6 months.
- Post-shipment finance can also be provided as bill discounting and invoice factoring.
Finance Against Collection of Bills:
Loan obtained against bills shared for collection
- Lenders agree to finance these export bills, which the guaranteeing companies will repay in case of default
Discounting Letter of Credit (LC):
- Loan obtained against LC, which acts as security for the lender
Who Can Provide Export Finance in India?
We at Hero FinCorp can provide export finance of up to Rs 40 lakh to business houses in India. With our uncomplicated and hassle-free loan application process, we ensure small businesses get the necessary funds to manage their export business. Our loans are designed to cater to the unique needs of small businesses, and we offer flexible repayment options that suit their cash flow requirements.
Conclusion
Export finance is a crucial financial instrument for small businesses engaged in international trade. It helps them manage the financial risks of international trade by providing the necessary funds. Small business owners should explore the various types of export finance available and choose the one that best suits their needs. Understanding the difference between term and working capital loans is essential before availing of any financial support for their business.
FAQ:
- What is the role of RBI in export finance?
The Reserve Bank of India (RBI) regulates the export credit policy in India and provides guidelines for banks and financial institutions to follow while providing export finance. - What are the objectives of export finance?
The objectives of export finance are to provide financial support to businesses engaged in international trade, manage the financial risks associated with international trade, and promote exports. - What is the packing credit limit in India?
A packing credit limit is the maximum amount of credit an exporter can avail to finance the packing and transportation of goods for export. - What is the period of packing credit?
The period of packing credit is generally up to 180 days; however, it can be extended up to 270 days in some instances. 
