One of the most common ways of financing
exports is by obtaining credit from commercial banks (much
like you would finance your domestic activities). Although this tends to be a traditional source
of finance, most smaller exporters complain that banks
are not very receptive to their financing needs and are
far too bureaucratic in their procedures. Bank credit
also tends to be relatively expensive. You may want to
read more about dealing with banks.This
credit may be in the form of an overdraft that you negotiate
with the bank or it may be a loan for a specific project,
although prefer not to finance individual orders as they
prefer to establish an ongoing business relationship with
Although many entrepreneurs may complain
that getting financing from a bank is like drawing blood
from a stone, the reality is that banks are the key source
of exporting financing the world round. Banks are not
reluctant to provide financing. Indeed, providing financing or credit
is one of the main ways for them to earn income for themselves.
At the same time, banks do not want to simply throw their
money away and so they take great care in considering
and analysing the requests for financing that they receive
from prospective exporters. In so doing they take many
factors into consideration.
To begin with, they look at the business
history of the company asking for financing. If you have
had a rocky relationship with your bank and have struggled
to pay back money in the past; or if your business is
currently struggling to make ends meet, then do not expect
a open-armed welcome. Your bank will require considerable
convincing that you will make a success of this venture.
If this is your first time venture into
exports, your bank may be more reluctant to assist you
(or will at least want considerable assurance of your
likely success). Your bank is certainly not likely to
give you money unless you can show the thought and effort
that you have put into this venture already. They will
want to know:
- What research have you done?
- What plans have you made (they will almost certainly want to see your export plan)?
- What makes your product so special?
- Why have you selected this particular country?
- Who have you spoken to?
- How will you market your product?
- What sales/profits do you expect and how long will
it take to achieve these sales?
Do not view these expectations in a negative
light. If you can convince your bank of your case, then
you stand a good chance of success. If your plans are
not thought through, are very thin, or are unrealistic,
expect a frosty reception from your bank. The best is
to go back to the drawing board and do your planning properly.
If, on the other hand, you are able to put
a clearly thought through export
plan on the table that
shows the research you have done and the export plan you
intend following, and if this plan is realistic, the banks
will almost certainly consider it favourably. Be particularly
realistic about what you hope to achieve, the sales you
will achieve, the profits you will make, the time it will
take and the effort involved. Banks know exactly how difficult
exports are. Indeed, our suggestion is that if you do
not have a well-formulated export plan on paper, forget
about approaching your bank!