What is Export Finance?

Mr. VINOD right answer.

Funds advanced by a lending institution (such as an export-import bank or trade development bank) against confirmed orders from qualified foreign buyers to enable the exporter to make and supply ordered goods. Usually, the exporter arranges a commitment from the buyer to make the payment directly to the lender. Upon receipt of payment the lender deducts the loan amount plus interest and other charges and forwards the balance to the exporter.

Trade Finance is a specific topic within the financial services industry. It's much different, for example, than commercial lending, mortgage lending or insurance. A product is sold and shipped overseas, therefore, it takes longer to get paid. Extra time and energy is required to make sure that buyers are reliable and creditworthy. Also, foreign buyers - just like domestic buyers - prefer to delay payment until they receive and resell the goods. Due diligence and careful financial management can mean the difference between profit and loss on each transaction.

The following factors and considerations apply to financing in general. Financing can make the saleFavorable payment terms make a product more competitive. If the competition offers better terms and has a similar product, a sale can be lost. In other cases, the exporter may need financing to produce the goods or to finance other aspects of a sale, such as promotion and selling costs, engineering modifications and shipping costs. Various financing sources are available to exporters, depending on the specifics of the transaction and the exporter's overall financing needs.

Financing CostsThe costs of borrowing, including interest rates, insurance and fees will vary. The total cost and its effect on the price of the product and profit from the transaction should be well understood before a pro forma invoice is submitted to the buyer.

Financing TermsCosts increase with the length of terms. Different methods of financing are available for short, medium, and long terms. Exporters need to be fully aware of financing limitations so that they secure the right solution with the most favorable terms for seller and buyer.

Risk ManagementThe greater the risks associated with the transaction, the greater the cost. The creditworthiness of the buyer directly affects the probability of payment to an exporter, but it is not the only factor of concern to a potential lender. The political and economic stability of the buyer's country are taken into consideration.

Lenders are generally concerned with two questions:

• Can the exporter perform? They want to know that the exporter can produce and ship the product on time, and that the product will be accepted by the buyer.
• Can the buyer pay? They want to know that the buyer is reliable with a good credit history. They will evaluate any commercial or political risk.

If a lender is uncertain about the exporter's ability to perform, or if additional credit capacity is needed, government guarantee programs are availalbe that may enable the lender to provide additional financing.

Its kind of guarantee for the exporter. Its kind of like LC, loan, export finance, pre-export finance. Why its required because many a times its seen the credit rating of the foreign buyer is not good so in that case either a bank or a lending institute gives a guarantee of the buyer. 

Exporting Finance is one of the methods are being used to transfer funds, through the shape of goods , usually manufactured goods, from a location to abroad overseas, without payment, while payment will be later and delayed until the buyer sold the goods to final consumer and that time fund will be transferred to the seller. It is funding with a different type rather than bonds, loans,...etc

Loans before shipping.

Negotiate special export letters of credit.

Buy export items.

Buying or financing export receivables.

Discount with the approval and acceptance of bankers.

1. It is often a key factor in a successful sale. Contract negotiation and closure are important, but at the end of the day, your company must get paid. Exporters naturally want to get paid as quickly as possible, while importers usually prefer to delay payment until they have received or resold the goods.

Export finance involves providing capital to help companies engage in exporting activities.

Such as LC, loans, credit , etc.

Export financing is the activity of governments that helps companies by financing their export activities offering low interest rate loans that the company could otherwise not obtain at a rate lower than market price. Export financing provides an opportunity for those organisations who would otherwise not have been able to participate in trade activities because of financial constraints.

Government or financial institution help through special rate financing for increase in export. special status given to few segments which ll not be able to functional without special status.