Three Ways to Finance an Import Business

Add Importing to your Business Using these Non-Bank Methods

Container ship on river harbor, Tacoma, Washington, USA
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Starting an import business can prove to be a profitable small business venture. But how do you obtain start-up funding to finance a small import operation?

A global business, such as an import/export business, requires special business finance skills.

What Are Imports?

Imports are goods and services that cross into a foreign country for resale. An import business can be a profitable business because of the low-cost goods available for import from foreign countries, like Korea, China, and Mexico.

The cost of products from these countries is so low that they can be resold for a nice profit margin.

Adding imports to the products your small business offers may make the difference between failure and survival. Even though you have to learn all about importing and selling products, and there is a lot to learn, it may be worth it.

However, it may be difficult to get bank financing for an import business. As a result, you may have to turn to alternative methods of financing.

Here are three possible methods of financing your import business.:

  • Asset-Based Loan: Factoring accounts receivable is simply selling your credit accounts or accounts receivable to a commercial finance company, bank, or other financing company. Accounts receivable are sold at a discount, usually 80-90% of the face value of your credit accounts. The factoring company gives you an advance payment, for a small fee of 2-3%, for the accounts you would normally have to wait on for payment.
  • Use Inventory:  Even though inventory financing can be expensive, it is a very effective way of financing this type of business activity. You use your current inventory to secure a loan to allow you to buy the imported goods your customers desire. This allows you to increase your inventory without impacting your cash flow as long as you think you can service your debt.There are three types of inventory financing you can pursue depending on your needs. You can use a blanket inventory lien, floor planning, or field warehousing.
  • Purchase Order Financing: This is similar to factoring your accounts receivables. It goes one step further. You take your invoices or purchase orders and assign or sell them to a commercial finance company, which assumes the risk and the task of billing and collecting. After the products are manufactured, the commercial finance company collects from the customers, takes its cut of the proceeds, and pays you the profit. Purchase order financing is certainly not as cheap as a bank loan. If banks aren't loaning money, however, it is an option. If your profit margin is high enough on the goods you are importing, then purchase order financing may be for you. It is important, with purchase order financing, that you have a good supply chain and creditworthy customers.

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