The following is an overview of possible sources of capital for export/import businesses.

• Internal Sources

This Internal Source is the best source of financing for initial capital needs or expansion because there is no interest to get paid back or equity in the business to get surrendered. Start-up businesses have limited chances of obtaining loans, so self-funding becomes the only alternative

• Money in saving accounts, certificates of deposit, and other personal accounts
• Money in stocks, bonds, and money market funds

External Sources

• Family and Friends

This is the second-best option for raising capital for an export-import business. Family or friends should borrow the money with a promissory note indicating the date of payment and the amount of principal and interest to be paid. As long as the business pays a market interest rate, it is entitled to a tax deduction, and the lender gets the interest income.

• Banks and Other Commercial Lenders

The most prominent challenge to successful lending is the turnover rate of small businesses. In general, fewer than half of all small businesses survive beyond the third-year mark. However, the survival rate for export-import businesses is generally higher than that of other businesses. Credit cards were not a significant source of financing. Of all the businesses, 58 percent maintained a working capital line of credit, followed by term loans (42 percent). Only 3 percent of the businesses used Small Business Administration (SBA) loans (Anonymous, 1995).

• Asset-based financing

Banks and other commercial lenders provide loans secured by fixed assets, such as land, buildings, and machinery. For example, they will lend up to 80 percent of the value of one’s home minus the first mortgage. These are often long-term loans payable over ten years. Business assets, such as accounts receivable, inventories, and personal assets (savings accounts, cars, jewellery, etc.), can be used as collateral for business loans. The use of saving funds as collateral could reduce interest payment on a loan. Suppose the interest on the savings account is 4 percent, and the business loan gets financed at 12 percent. The actual interest rate that is to get paid got reduced to 8 percent.

• Lines of credit

These are short-term loans (for one year) intended for purchases of inventory and payment of operating costs. They may sometimes get secured by collateral such as accounts receivable based on the creditworthiness and reputation of the borrower. A certain amount of money (line of credit) is made available, and interest gets often charged on the amount.

• Personal and commercial loans

Owners with good credit standing could obtain personal loans backed by the mere signature and guarantee of the borrower. They are short-term loans and subject to have relatively high-interest rates. Commercial loans are also short-term loans that are often backed by stocks, bonds, and life insurance policies as collateral. The cash value of a life insurance policy can also be borrowed and repaid over a certain period of time.

• Credit cards

Credit cards are generally not recommended for capital needs for new or existing export-import businesses because they are one of the costliest forms of business financing. They charge extremely high interest rates, and there is no limit on how much credit card issuers can charge for late fees and other penalties. 

If financing options are limited, credit cards could be used if the probability of the business succeeding is very high (if you have made definite arrangements with foreign buyers, etc.). One should shop for the lowest available rates and plan for bank or credit union financing at a later date if the debt cannot be retired within a short time period, possibly with an account receivable or inventory as collateral.

These aspects make your possibilities endless once you enter the import-export business, and your chances of reaching the profit you want increase tremendously. All you need to do is to identify the suitable possibilities that each market offers you and do your best to negotiate the best price.

B2B Export Import Academy can provide you with important information that can help you identify the best import-export opportunities and the best way to avoid potential scammers.

If you’re a beginner and don’t know where to start, B2B Export Import Academy will be the perfect place.

It doesn’t matter where you’re, You can attend our import-export online course in Mumbai, in pune or anywhere in the world just being at home. So you can start a trading business of your own even while at home.  Due to the current situation, you may not be able to join us physically. Our import export online course will guide you on every information you need to learn about the trading business.