Basics of Export Credit Financing

With a population of over 3.1 million and links to key countries around the globe, Dubai is a great place to start a business. However, even in the UAE, there are several challenges a small business can expect to face. One of the biggest obstacles faced by exporters is to raise sufficient capital to oversee their day to day operations, while also covering the costs associated with orders made by overseas customers. Under such circumstances, it is essential to seek the assistance of an export finance provider who can help you with required monetary funding.

To find a trusted export finance company in the UAE can be a challenge in itself. While some of them charge extremely high fees for their services, others insist on tight payment windows that can put you under even more financial pressure. As one of the region’s top trade finance agencies, Credico Capital understands the importance of export financing and flexible repayment schedules. Read through to understand more about the concept of export financing and how it can help you.

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Export Finance

What Is Export Financing?

Bank Guarantee / Letter of Guarantee

When a business wishes to expand into foreign markets, export financing plays a crucial role in the process. In most cases, export financing is provided by a bank. This often comes after the exporter has secured the assistance of a trade finance agency, such as Credico Capital. There are also a growing number of alternative financial institutions offering such services directly. Regardless of whom it is obtained from, export financing essentially allows a business to access money from a sale before the customer’s actual payment is processed. This provides the exporter with the capital needed to package and ship the customer’s order, as well as to cover additional costs.

The timeframe in which an exporter is expected to repay their lender will vary depending on their specific agreement. That being said, the most reasonable institutions allow their clients to take up to 180 days to send repayment. In the vast majority of cases, this grants the exporter plenty of time to complete an order and access their funds.

It is important to note that export financing is often broken down into two categories. These are pre-shipment and post-shipment. You’ll find both forms discussed in detail in the following sections.

Pre-Shipment Financing

Bank Guarantee / Letter of Guarantee

For new businesses in the UAE, pre-shipment financing is perhaps the most convenient form of export credit. It grants the exporter the means to cover the costs associated with shipping an order to a customer. This includes everything from the cost of packaging to paying the wages of the workers who help fulfill the order. Pre-shipment financing can even be used to cover production costs if an item is being custom made for a customer.

In order to secure pre-shipment financing, it may be necessary for an exporter to provide a letter of credit. This is an official document issued by the buyer’s bank, ensuring payment to the exporter upon the completion of a pre-determined set of tasks. As well as building trust between buyer and seller, a letter of credit has the benefit of assuring the exporter’s bank that they will receive repayment for their pre-shipment financing.

Post-Shipment Financing

Bank Guarantee / Letter of Guarantee

As any would exporter know, payment sent by a customer is seldom received immediately. It remains the case even when the customer completes the payment in full as they place their order. Based on the method used to send payment, the time it takes for a transaction to clear can range from a day to a couple of weeks.

There are even a few horror stories of international transactions being frozen for months while awaiting inspection. Post-shipment financing provides a solution to long periods spent waiting for the payment to clear. It provides the exporter with an advance on the money and enables him to continue his operations during the period between shipping and receiving payment.

How to Secure Export Financing

Bank Guarantee / Letter of Guarantee

Whether you require pre-shipment or post-shipment funding, securing export finance from a credible source can be a challenge. It is particularly true in the UAE, where small businesses are vying for funding in large numbers. New companies, in particular, can experience an especially trying time, as they may not have the reputation or financial records necessary to warrant trust from their potential lender.

If you are facing dilemmas, seek out the help of a trade finance agency. Credico Capital works with exporters all over the UAE to help them obtain export financing for overseas transactions. By guiding exporters through the application process, Credico Capital provides a firm foundation for foreign expansion. Additionally, it is worth noting that Credico Capital also works with buyers in the UAE to secure letters of credit. It means that individuals who rely on exporting and importing can count on our support in all types of overseas transactions.