Import Financing For Growing Businesses
Nothing is more thrilling for a business owner than watching their business grow and establish itself in the industry and surrounding community. However, there are certain challenges which must be faced alongside this growth, such as limited financing from banks and other institutions. This can be particularly problematic if the business in question is concerned with costly endeavors such as importing. While this is a very profitable practice, getting started can be expensive and with no help from banks, many business owners are at a loss of where to begin. There are actually a few options available for import financing which any growing business can take advantage of, each with its own benefits that must be fully understood in order to make an informed decision.
Factoring Accounts Receivable
This is an option that is essentially an asset-based loan. If an owner chooses this option, they will sell their credit lines and accounts receivable to a bank or other third party lenders such as a commercial financing company. In return, they will receive between eighty and ninety percent of the face value of the account, minus a small fee. This give a large chunk of working cash flow to the business, when otherwise it would need to be waited on for a potentially extensive period of time.
Inventory Financing
If an owner chooses to go this route for their import financing, they will make use of their existing inventory in order to secure a loan from a bank or other lender. The inventory is used as collateral for the specified amount of the loan, meaning that the cash flow within the business will not be impacted. While this is an excellent aspect of inventory financing, there are risks. If payments cannot be met, losing inventory could be catastrophic to many small businesses.
Purchase Order Financing
In this method, purchase orders and invoices are sold to a bank or commercial financing company. In this aspect, this option is very similar to factoring accounts receivable. The company which buys the invoices assumes any and all risks associated with it, completes the sale and then returns the profits to the business after taking their cut. This is a great option for those who can not get a bank loan, but tends to be much more expensive.
Because each option has its own risks and gains, it’s important to closely consider each before making a decision on how to handle import financing with any business. Speaking to a professional can help to clear the air of anything that’s unclear about any of these methods and point a business in the right direction when a decision is made.
