Determine Your Financial Requirements
To determine your financial requirements for supporting your expansion into international markets, you need to figure out your financial situation as it relates to your short and long term export plans. Key questions to ask at this stage include:
Is your current financial position sound?
Do you have a financial plan to cover export costs?
Are sufficient funds available for exporting?
Have you developed an export costing sheet?
Are you able to wait for payment?
What are all of your financial commitments?
Financing your work in progress
Providing credit to your customer
Ensuring you will get paid without undue delay (slow collection of receivables)
Ensuring your foreign customer does not default on total payment
Accounting for currency exchange controls and fluctuations
You should develop a cash budget which forecasts two to three years of cash you will need for your ongoing activities including exports. Have a longer term capital budget showing cost/benefit analysis of your export program and make sure you have clear objectives in mind. Establish your short-term (current operating activities, purchase of raw materials, goods and services, wages, etc.) and medium-term to long-term (facility modernization, new machinery, buildings etc.), financial needs.
Note: You may wish to consult a financial professional (bank, auditor, independent financial adviser) to help you at this and later stages of financing your export activities.
Financing from the bank
If you determine that you do in fact need outside financing for your export activities, it may be most suitable for you to first seek financing from the bank you currently use for domestic activities, provided they can address your international market needs as well.
In general, certain types banks are more suited to certain needs (business/export plans, size of business, assets and collateral). Commercial Banks are well-suited to the smaller enterprise whereas investment and merchant banks maintain a larger corporate focus. Business/Industrial Development Banks can be a good resource for financing (a Canadian example of this is the “Business Development Bank of Canada” – www.bdc.ca). Export credit guarantee and insurance corporations cover risks such as getting paid by importers (in Canada we have EDC – Export Development Canada – www.edc.ca).
Requesting Financing
Requirements for obtaining financing vary by country, region and institution but, generally speaking, the minimum items you need to bring include the following information and documents to the financial institution from which you are requesting financing:
Company Profile
Financial documents related to annual cash flow, forecast profit-and-loss accounts, etc.
Financial records such as last audited accounts, annual reports, etc.
Official Company documentation (Incorporation, licensing, association, etc.)
Description of proposed activity for which financing is being sought including research of the customer (buyer/importer), their background and standing in their business community.
Note: If the request is for a larger loan, you will likely be required to provide a full Business Plan or Feasibility study. These should present capital expenditure as well as cover a three year forecast of activities related to the export endeavour including forecasted capital expenditure and revenue and other relevant details.
Secure Your Loan
You will need to put up collateral to secure a loan. For short-term loans, this is most often in the form of:
Raw materials inventory
Finished goods and articles for export
Receivables
Other Capital (Cash, Treasury Bonds and other fixed term assets)
For longer-term loans, you may need to put up larger fixed material assets such as machinery, land and buildings.
For more information regarding financing please visit The Canadian Trade Commissioner Service website.