India is the fastest-growing large economy in the world, and it exports billions of dollars worth of goods and services to several nations every year. Through several campaigns like “Make in India” and initiatives to encourage the establishment of export businesses in India, the Indian government is actively promoting Indian exports. Import and export are always seen as the two halves of the same coin, although they are both included under the same heading. The import-export industry involves domestic and foreign businesses purchasing and selling goods and commodities.
Following are the 5 Methods for Financing an Import Export Business in India
- Payment in Advance – This is also referred to as “cash in advance,” while it isn’t strictly an import finance strategy. Here, the importer only makes an advance payment to the exporter for the goods. The benefit of this approach is that it is easy to understand. The drawback is that the importer bears all the risk (what if the items are subpar?) and uses up a significant portion of the seller’s working capital, which can impede the business from growing and even cause cash flow issues.
- Letters of Credit – One of the most popular trade finance tools is the letter of credit. An LC is an agreement formed by a financial institution on behalf of the importer that is legally binding and irrevocable and guarantees payment for the goods as long as specified conditions are followed. This way, the exporter takes on the importer’s credit risk rather than the banks. The advantages of employing LCs include their widespread acceptance and a great degree of adaptability. Even though simple import/export transactions only require the “basic” LC, the conditions of LCs can be altered to accommodate a variety of transaction types. The importer may also include safety nets in the LC, such as requirements for delivery, quality, and other factors like payment terms.
- Cash Against Documents (CAD) – CAD is an additional type of advance payment in which the importer is still required to pay for the products before getting them. In CAD financing, a third party (such as a bank) holds the shipment and title documentation, which only releases the products to the importer after complete payment. An escrow account could be used as an example.
- Business Loans – A straightforward company loan is an easier way to finance imports. Its operation is apparent; thus, there isn’t much to say about it. However, the benefits are also clear because the importer can pay the exporter immediately after the loan is disbursed. Additionally, there should be ample time to sell the products before repayment, depending on the loan’s term.
- Private Resolution – You can do a single payback 60 to 120 days after you accept the items, allowing you adequate time to stock and sell them. We charge fair interest rates and don’t use your goods as collateral or take anything away from your everyday sales. Additionally, using our financing option has no impact on your credit score.
Documents Required to Avail a Loan for Import-Export Business
- Passport size photo
- Business strategy
- KYC records for the owners, partners, and co-applicants(if Any)
- PAN cards for the partner, business, and applicant
- Certificate proving company registration
- Information on the bank’s current account, ITR, and sales tax
- Evidence of freight forwarding companies hiring
- IEC or Import Export Code
- The Exports Promotion Council (EPC) issues the exporter a registration and membership certificate
- Certified and Audited Financials by CA
- Business Address Proof
- Documents showing income proof and declaration documents
* IEC stands for the import-export license that the Indian government has granted. The Director-General of Foreign Trade (DGFT), Department of Commerce, issued the 10-digit code.
India’s Top Import/Export Industries for 2021 to 2022
Entrepreneurs occasionally need additional funds to invest in addition to what they have set aside as their budget to establish an import-export business. Since this transaction occurs across international borders, certain business loans, lending products, or credit lines are only available. The list of business loans available for starting an import/export company in India is shown below:
- Loan for working capital
- A Term Loan
- Finance for trade
- Credit letter
- Credit line
- Discounting of bills or invoices
- Overdraft Service
These loan options each have various features and unique advantages that can be used to launch a new business. Every financial institution must provide its consumers with something fresh and improved. The best way to choose the best lending product or credit line among well-known banks and NBFCs is to review and compare them.
Features & Benefits of Loan for Import-Export Business
- You receive export credit as an exporter for pre- and post-shipment financing.
- Using letters of credit to speed up commerce
- To reduce foreign exchange risk and lower borrowing costs, you can obtain loans in foreign currencies (export credit and buyer’s credit).
- Protect yourself from foreign exchange risk by utilizing derivative products like futures and options.