Alternative import finance options your business can consider

If you’re having trouble getting funds to pay a supplier, consider these alternative import finance options you’ve probably never heard of.

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It’s common in business for a supplier to require that you prepay for goods before they’re shipped. However, you may not have the required cash to pay upfront and you may have trouble getting traditional trade financing or credit extensions from banks.

If so, you may wish to look at some alternative import finance options that can help you pay your suppliers without having to put up security or pay extravagant fees for deferred payments.

What options do I have for alternative import finance?

There are two main types of alternative import finance options you can consider:

  • Purchase order (PO) financing. This type of financing helps you pay suppliers for pre-sold finished-product orders that are directly shipped to your customers. Here, the lender looks at the purchase amount, the type of goods, your previous trading record and your buyers’ creditworthiness. Repayment is usually made automatically, upon your customers’ purchase.
  • Trade advances. A trade advance (or trade facility) is unsecured short-term financing that helps you pay your supplier. It doesn’t require your order to be pre-sold and you’re generally expected to make repayments when your shipment arrives. To qualify, you’ll need a clean credit history as well as an established record of successful trade.

How to compare your options

When considering your financing options, make sure you select the most competitive loan product that’s appropriate for your particular business situation. Keep in mind the following when comparing your options:

  • How much can I borrow? Your lender may offer to finance most, if not all, of your shipment’s costs. This may include the cost of the goods, VAT, insurance and other fees related to your shipment.
  • What are my rates? When comparing rates between different lenders, see what type of interest rate will be applied (fixed or variable) and how often it will be calculated (eg, daily, weekly or monthly).
  • What will my repayments be? Repayments work differently between loan types. Lenders offering PO financing require automatic payment upon your buyer’s purchase, whereas lenders offering trade advances usually require repayment schedules that begin as you receive your goods and start selling.
  • What are the loan terms? Loan terms for pre- and post-shipment financing will vary between different lenders. Usually, pre-shipment financing will have a shorter term. Make sure you’re well-aware of the terms before you apply for any loan.

The pros and cons of applying for alternative import financing

  • No need for strong assets or equity. Unlike traditional banks that look to your business assets and equity, lenders offering trade facilities and purchase-order financing will generally not have such requirements.
  • Cheaper rates. Since these types of financing look to the strength of your purchase order along with a strong trading and credit history, they generally mean lower risk for lenders compared to traditional sources of financing. This equals lower interest rates.
  • Unsecured. These types of financing generally don’t require you to put up security, such as home or business equity. They focus instead on other factors related to your orders or contracts.
  • Not for startups. Since you’ll need to have been in business for some time in order to qualify, startups are generally ruled out for these types of loans.
  • High credit standards. PO financing requires very good creditworthiness for the customers buying your goods. Also, both types of financing require a clean credit history for your business.

Things to consider before you apply

Make sure you’re aware of the following pitfalls before you apply:

  • Not knowing your supplier. Too many times businesses conduct transactions with shady suppliers only to be exposed when (and if) the shipment arrives. Make sure you know exactly who you’re dealing with. A good way to avoid problems is to have a trading partner overseas to help you monitor letters of credit and properly inspect your shipments.
  • Borrowing at a high cost. Make sure you’re well-aware of all the costs associated with your loan. This includes the type of interest rate being applied (variable or fixed) and how it will be calculated. Also, be aware of all fees, including one-off and ongoing fees, and make sure you compare all options between lenders rather than jumping on board with the first lender you like.

Manage cash flow

If your business has outstanding invoices, invoice financing can help you get access to the required cash to pay upfront to your suppliers. It's a type of business loan that is secured by the unpaid invoices and comes with reduced risk, no asset requirements or interest payments.

Compare invoice financing products below.

Name Product Min. Loan Amount Max. Loan Amount Loan Term Upfront Fee Filter Values
Timelio Invoice Finance
Up to 4 months
Get up to 100% of the value of your invoices without having to wait for customer payments, and with no minimum turnover or operating history required.
ScotPac Invoice Finance
From 1 year
No set amount
Improve your business cash flow by financing your outstanding invoices. No minimum trading history required, but minimum 12 - month term and $10,000 in invoices.
ScotPac Selective Invoice Finance
1 to 3 months
Finance your unpaid invoices on demand with terms of 1 - 3 months. 95% of invoice is paid upfront, with no minimum trading history required.
Octet Invoice Finance
1 month to 2 years
No Set Amount
Convert up to 85% of your company's receivables into cash flow. The value of your receivables need to be worth at least $250,000 to be eligible.

Compare up to 4 providers

Frequently asked questions

What happens if something goes wrong with the delivery of my shipment?

It depends on the particular agreement made between you and your lender. However, with PO financing, your lender will still get paid since your goods are pre-sold.

How long do I need to have been in business for to qualify for such loans?

Depending on the lender, loan type and amount, anywhere between one and two years.

Can I qualify for PO financing for goods that haven’t been manufactured yet?

Unfortunately not. Your purchase order financing request must be for finished goods as there is more risk for the lender when having to worry about things such as late orders, defected items, etc.

Picture: Shutterstock

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