Applying Export Finance for Micro, Small & Medium Enterprises

Globalisation has allowed small and medium enterprises to grow beyond national boundaries, take their business to international markets, and grab rewarding opportunities. However, global business aspirations also pose certain challenges, such as fraud buyers, late payments, no payments, etc. That is why export finance proves to be a blessing for seamless international trade. It is an excellent financing solution that export dealers can use to trade with international buyers and importers. It gives them earlier access to capital without waiting for the buyers to make their payments. This comprehensive guide will help you learn how to apply export financing for Micro, Small & Medium Enterprises (MSMEs). 

How Does Export Finance Work?

Export finance is an excellent funding option for MSMEs requiring capital. Export companies usually agree to longer payment cycles with their buyers to attract more business. However, that causes a financial gap between delivering the orders and receiving payments. Export financing can arrange the finance to keep up business operations during their waiting period. The exporter can submit an unpaid invoice to a finance company that immediately grants them a percentage of the invoice amount. Once the buyer clears the invoice, the finance provider gets their money back with a service fee.

Benefits of Export Finance

Export finance offers multi-faceted benefits to suppliers looking to maintain a steady cash flow without taking a loan. That means they can grab every opportunity coming their way without pressurising their buyers to make earlier payments. Here are the significant benefits of export financing:

  • Quick access to funds that the exporter would not have received for months on end
  • Exporters can utilise the funds to grow the company by investing in new technologies and tools 
  • The funding amount depends on the invoice amount rather than on the exporter’s finances and credit history
  • The borrower becomes debt-free as soon as the buyer clears the invoice 
  • Opportunity to expand the business outside India
  • Establish a new export segment
  • Build working capital and maintain operational liquidity
  • Get a steady cash flow for other business-related expenses
  • Quick release of tied-up capital in purchase orders and invoices 
  • Faster transactions and export process
  • Minimise business risks
  • Enhance brand reputation and visibility among international customers
  • More confidence to compete with global brands 
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An exporter may receive export finance both before and after the shipment. They can utilise the money to procure raw materials, manufacture the goods, package and ship them. The capital facilitates manufacturing, distribution, and delivery of goods to fulfil orders.

Who is Eligible for Export Finance?

Since the eligibility criteria may vary between finance providers, checking the financier’s terms and conditions is essential to check who is eligible for the finance. An exporter must meet the finance company’s eligibility conditions to qualify for export finance. Generally, it is accessible to small companies who trade across their national border and grant longer payment terms. Some financial service providers may ask for proof of minimum revenue percentage coming from export trade. Additionally, positive revenue for the last few months and a decent credit score are enough to obtain quick Business Loans.

How to Apply for Export Finance?

MSME owners seeking export finance can apply for it both online and offline through a reputable finance provider. Filing out an application form is the first step to driving the credit process. The applicant must provide business and financial information to help lenders assess the involved credit risk. Providing accurate and transparent information is necessary to get the required funding without complications. One must spend enough time to fill and review the application, as it will convince the lenders of the borrower’s creditworthiness and viability. 

Another important element of a financial application is the invoice against which the exporter is willing to borrow finance. After preparing all the documents and submitting the application form, the applicant can get the required funding quickly and sustain their business operations without any financial gaps.

Risks Associated with Export Finance

Before applying for export finance, it’s important to be aware of the risks involved. Some of them are: 

Late Payments: The buyer might delay the payment due to cash flow issues or other reasons.

Service Charges: The export financing facility comes with service charges the exporter must pay to avail of the service.

Exchange Rate: Trading in foreign currencies is risky for exporters, which they must calculate to understand the risks and costs.

Limited Finance: The borrowed amount depends on the invoice value. Most finance companies lend a fixed percentage of the invoice amount as export financing.

Several finance providers offer export finance for SMEs in India. Before applying for one, one must compare the available options and choose the right plan that suits their needs. Choosing a finance company offering competitive service charges and favourable terms and conditions is essential to enjoy the maximum benefits.


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James Thomas
James Thomas
James is the Managing Editor at Times Insider. James joined Times Insider in ​recent 2023 in the newly created position of managing editor, designed to help the foundation. He is responsible for overseeing the daily flow of content across Times Insider digital channels, as well as editing, writing and managing content for Times Insider website and blog.