Import finance: Everything you need to know

Import trading can be highly capital intensive, and the fact that many customers operate on credit further slows down the cash flow for businesses. This is where funding options like import financing enter the picture.

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    Arabella McAvoy

    Page written by Arabella McAvoy. Last reviewed on January 24, 2024. Next review due July 1, 2025.

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      What is import finance?

      Import financing is a trade financing solution to help businesses fund the purchase of goods overseas. This way, trade businesses can preserve cash and fund their growth plans accordingly. Import financing can fund up to 100% of your international purchases–  freight, duty and VAT included. It covers services like import loans, invoice financing and factoring, bank guarantees, asset finance, asset-based lending, and supply chain financing.

      How does import finance work?

      Let’s cite a concrete example. For instance, Company X, a sheet metal fabrication company from Australia plans on importing a large volume of raw metals from Company Y in China, where the raw materials are cheaper.

      Company X does not have enough cash to pay for the large amount of raw metals, so it opts for import financing and chooses Swoop as its import loan provider. Swoop offers credit to Company X and it now has enough capital to pay for the bulk order of metals. Company X can even negotiate for better rates with Company Y since it can now make instant payments from import financing. As soon as the manufactured sheet metals are sold, company X can repay import loan provider Swoop.

      What are the different types of import finance?

      There are different types of import financing, and you should choose the right solution to achieve your business objectives.

      1. Letter of Credit

      This is one of the most secure and most common import financing methods. An issuing bank will give the exporter or seller a guarantee that the goods will be paid. However, to qualify for Import LC, the importer or buyer should prove to the issuing bank that they have a sufficient line of credit or enough assets.

      If you qualify, you and the seller can generate a sales agreement. Based on the final sales agreement, the issuing bank will draft the Import Letter of Credit. Once the exporter approves the LC, they will ship the goods according to the terms and conditions of the LC. The exporter will also submit the required documentation to the nominated bank. The exporter’s bank will then submit the approved documents to the importer’s bank, and once the nominated bank receives the payment, the importer can claim the goods delivered.

      2. Invoice finance

      This type of funding involves the selling of accounts receivables. Financial institutions usually provide 50-80% of the invoice value as loans to help businesses raise capital. The exact percentage depends on the lender’s risk criteria.

      Invoice finance is an attractive option if your customers usually take a long time to pay and if you have sizable trade receivables. You’ll still be the one to collect payments from customers, but when they pay you, you should settle your loan and reimburse the lender according to the invoice financing agreement.

      3. Asset-backed finance

      This is a collateral-based type of lending. You can use your accounts receivables, inventory, equipment, and other properties you own as collateral. Financial institutions may require a negative pledge clause as part of the agreement to prevent the borrower from reusing the same asset for another loan.

      How to get import finance

      You need to choose a financier and submit the necessary requirements to secure import financing. The required documents usually include:

      • Business plan
      • Credit Report
      • Audited financial statements
      • Financial cash flow forecast
      • Information on the company’s liabilities
      • Information about the business directors

      Depending on the lender, you may have to submit additional documents that prove your creditworthiness.

      Get started with Swoop

      If you need quick and reliable access to finance, Swoop is the place to be. We offer funding opportunities to trade businesses across the UK. The process is straightforward and hassle-free! Register for FREE today! We’ll help you choose the right funding opportunity to improve your cash flow and grow your business.

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