Resources for Developing a Financial Plan/How Do I Qualify?
|Unit 6.1-Resources for Developing a Financial Plan|
How Do I Qualify?
Banking institutions provide working capital loans, short-, medium- and long-term financing for domestic as well as international operations. Each bank will have established its own criteria against which it will lend to its customers; however, they all require a minimum of two years in business, a positive net worth and consistent annual profitability. The financial plan, collateral, and a relationship with the bank are keys in obtaining funding. The higher the risk is the higher the interest rate. The bank may also decide to partner with the SBA to receive loan guarantees in order to reduce its risk. Each bank will be different in the amount of funding it will provide, the activities it will fund, and the countries it will provide funding to or for. It is important to develop a strong working relationship with your banker to make qualifying for lending a smoother process.
Government programs are often initiated and monitored through a bank. They are established to help an exporter increase exports, which in turn will help the trade deficit. The manufacturing of the product must have a majority material and manufacturing cost of United States content.
Export-Import Bank – www.exim.gov
Ex-Im Bank’s mission is to expand employment and income opportunities through the exports of goods, services and agricultural commodities for small and medium-sized businesses. Ex-Im Bank sets out to achieve its mission by providing guarantees to banks to encourage them to finance foreign exports by US companies. The material at a minimum must be 50% US content. Rates are determined by country risk levels. Country limitations are posted on the Ex-Im Bank website and are broken down into the public and private sectors with length of time limitations, which can range anywhere from less than one year to up to seven years. It is often difficult to finance inventory, but under certain conditions Ex-Im Bank will do so through a bank with its guarantee.
U.S. Small Business Administration – www.sba.gov
The SBA’s programs basically parallel the Ex-Im Bank programs; the main difference is the size of the transaction. It is important to remember that the SBA does not provide loans directly but loan guarantees through local banks. Many states have similar programs to the Ex-Im Bank programs, and often the qualifying requirements are more liberal. They also require a minimum material content for their respective state.
Factoring companies (factors) finance transactions when a seller does not meet the minimum bank requirements. They are dependent upon the quality and amount of the company’s accounts receivables. The interest rates they charge can be significantly higher than those of a bank. Receivables can be purchased outright, or they can be financed for the short term that they are outstanding. Foreign receivables are usually insured.
Collecting on foreign receivables can be costly and cumbersome. Insurance can eliminate many of these problems. It allows the receivables to be financed by banks or factors. The insurance carrier approves a buyer’s credit before the sale occurs and will assume the responsibility to collect if not paid when due. The seller also eliminates staff to monitor and control the collection process.