International Trade Finance
By: Jeff Balck
The business of exporting can provide a company with the means to drastically increase revenues. In many instances, company’s attempting to export are unnecessarily blocked by financial problems. The problems may involve the accumulation of foreign receivables or the additional working capital required to handle the extra sales that exporting can generate. With the correct insights and understanding, "international trade finance" can provide a solution to these problems. If the correct steps are taken, there are methods and channels that will help a company to overcome the obstacles to successful exporting.
The use of exporting to increase sales is not a new concept; however, competitive pressures enhanced by the ease of communication, travel, and technology has made international trade more vital than ever before. Exporting is not complicated. Exporting is an accepted business practice in many countries. To the uninformed however it can prove to be a complex undertaking. Exporting offers many advantages. In addition to increasing the leverage of an existing value chain, it can be used as a means of increasing economies of scale, reaching wealthier markets, and taking advantage of nearby borders. Exporting can be demand driven or it can be supply driven.
Once a company decides that exports are the path to greater market share and increased revenues, it is absolutely essential to establish access to capital. The most obvious choice is strong international banks. Choosing the wrong bank or bankers can undermine the likelihood for a successful export campaign. The fact is, most banks are not interested in the customized lending arrangements necessary for international trade unless credit lines in excess of $250,000 are required. Certainly there are smaller banks with skilled managers in innovative trade finance techniques that are willing to accommodate smaller deals. It is, however, imperative that the company establishes a solid foundation with an institution that can meet the firm’s requirements.
Despite a company’s best effort, often banks will not be willing to finance trade projects. There are, however, alternatives to finding working capital financing in government supported agencies. Beyond the government, companies can also look to private enterprise for financial backing. Regardless of the institution, the company must be prepared to sacrifice equity for capital. If a bank will not support your requirements it might be prudent to attempt to support your needs with a guaranteed SBA loan. In addition to SBA guaranteed loans, an additional source for trade finance capital can be found in Small Business Investment Companies (SBICs). SBICs provide equity capital and long term loans in the form of warrants, capital stock, and debentures.
When deciding on whether or not to enter into long-term trade financed projects, it is imperative to be aware of the potential targets. Awareness of projects at the earliest possible date provides companies with the added benefit of time for preparation of the detailed technical and financial planning. The necessary information and data necessary to support these efforts can be found through a variety of private and government agencies. Beginning with the Department of Commerce, several organizations such as Development Business, International Business Opportunities Service, and The Agency for International Development can help businesses identify potential targets.
The Top Five World Wide Web Sites for Information on International Trade Finance
1. World Trading Information Center:
http://www.world-trading.com/barticle.htmThis site is dedicated to providing browsers with access to international business articles and information. Departments with topics ranging form in depth government and private information to international classified ad’s for company profiles and products supplement these by category.
International Trade Association:
http://iami.org/ita/news.htmlThe ITA site offers a variety of articles and commentary on issues related to international trade. Examples of recent highlights include a two-part section on the risks of international trade finance. Other related topics include information on foreign laws and regulations and business practices in fast growing regions.
3. The Journal of Commerce:
http://www.joc.comThe JOC provides detailed information on issues related to international trade and transportation. Topics include reports on global trade, international trade finance, imports exports and foreign markets. This site is the electronic version of the newspaper.
4. Cambridge Trading Services:
http://www.cambtrade.com/Links.htmlThis site provides a list of interesting links to other international trade World Wide Web sites. The current list is comprised of 27 links that cover a range of topics from offering the names of consulting firms to a global directory for investment opportunities.
5. Office of International Trade (SBA):
http://www.sba.gov/oit/finance/index.htmlThis site provides information pertaining to securing financial assistance to help businesses expand into foreign markets. This site provides paperwork and forms necessary to participate in SBA trade finance programs and offers links to other trade information on the Internet.