What Is Export Finance?

Export finance involves providing capital to help companies engage in exporting activities. This can include loans, grants, letters of credit, and other financing tools that may be useful. Numerous governments offer some export finance to domestic firms with the goal of increasing involvement on the global market. It is also possible to get assistance through financial institutions that specialize in importing and exporting, and are very familiar with the financial needs and limitations involved.

Companies that want to export goods and services may need substantial capital to do so, especially in competitive markets. They need to bear the costs associated with production as well as shipping and other activities, like undergoing regulatory inspection and approval. For a small company, these costs may be too high to carry, and could limit the ability to expand markets by exporting. Larger firms may prefer financing to free up their own capital for other applications.

Financial institutions and government agencies can provide export finance opportunities to help firms of all sizes export successfully. Financing can be a critical part of doing business. In a very crowded market, potential business partners may consider financing before other issues, to eliminate companies they consider to be poor business risks. Companies with an export finance arrangement to back them may be more likely to successfully navigate the negotiations process to create a business relationship with a prospective trade partner.

Applying for export finance assistance usually requires submitting substantial documentation. A company must be able to show what it can do and what it plans to do in an overseas market. It may need to provide documentation that its products are in demand and there is a clear market of potential buyers. The company's own credit record can also be a consideration. Financial institutions and government agencies generally do not extend financing to poor credit risks, as it is not an effective investment.

It can be advisable to seek information from several export finance providers. This can give companies an idea of the range of products and services available, along with their nature. Some providers offer lower fees and other benefits. In some cases, it can be possible to pit competing offers against each other to get more favorable terms and expand the available options. Competing quotes can also allow companies to weed out financial institutions with excessive service rates or extremely limited terms and conditions that could become a problem.