What is Import Credit Financing?

What are its Different Types?

For businesses based in the United Arab Emirates, purchasing goods from other countries can be risky, considering the instability of many of its neighboring countries. Importers may see their orders held up or delayed indefinitely due to foreign relations and other external factors. Such circumstances can be a significant problem for sellers as they may not be able to get the money they spend on purchasing the goods. Thankfully, those who secure import finance before an overseas deal can be certain of protection against losses incurred in the event of delayed or canceled delivery. 

Import trade financing is offered by several financial institutions across the United Arab Emirates. Usually availed from banks, these are secured with the help of a trade finance agent such as Credico Capital. Once obtained, it can be used to fund overseas purchases. It will also help the importer allocate more capital to the day-to-day running of their business while using the bank loan to cover the cost of purchases. The loan can be repaid once the importer has received the good and turned a profit with the purchased items.

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Import Finance

How to Secure Import Credit Finance

Bank Guarantee / Letter of Guarantee

To have a realistic chance of being approved for import credit financing, your business will need reliable financial records. You will also have to provide evidence that the goods you are importing are in demand and will sell, yielding you a profit. Even then, however, you may experience some difficulty securing funding due to the intricacies of the application process. For this reason, you should consider hiring a trade finance agency to work with you in obtaining import funding.

Credico Capital is familiar with the nuances of the import credit application process. We can guide you through the entire procedure, providing invaluable advice and feedback as you progress. It virtually guarantees all suitable candidates will receive the funding they need to complete overseas transactions without risking financial loss. As one of Dubai’s top trade finance agencies, Credico Capital has experience securing all forms of import credit finance. You’ll find each of these types outlined in detail below.

Letter of Credit

Bank Guarantee / Letter of Guarantee

The letter of credit is the most popular method of import credit financing. An import LC is a document issued by the buyer's bank listing the exporter as the beneficiary. What it does is that it virtually ensures payment to the exporter once the transaction is completed. The exporter must, of course, agree to the listed terms and can consult a trade finance agency to secure a beneficial deal. Hence, importers who are pursuing an LC should also seek the services of trade finance agency.

An import letter of credit is particularly useful during large transactions with an exporter you have not worked with in the past. In addition to ensuring payment and goods are received, an LC allows unfamiliar parties to develop a business based on trust. If both parties are happy to continue working together, they may opt for what’s called a “revolving letter of credit.” It is a letter of credit which can be used to fund multiple transactions, typically for a period of up to one year.

Bank Guarantee

Bank Guarantee / Letter of Guarantee

A lot of novice importers get LCs and bank guarantees mixed up. While there are certainly similarities between the two, they ultimately serve different purposes. Based on your individual requirements one of these will be better suited to your business than the other. Bank Guarantees are commonly issued by an accredited financial situation such as a bank on behalf of an importer.

The purpose bank guarantee is to pay on the importer’s behalf but is to assure the seller of the buyer’s ability to pay for the goods. In many aspects, BG’s can be compared to standby letters of credit.