Exporters fuel the economy by opening the way to the international market. Access to finance has always remained a challenge for many exporters; however, despite its great importance, it continues to be a limiting factor. While many sources of finance exist through which the export business can be funded, the finance accessed by some exporters comes with several restrictions or is not available at all to them. The above factors must be identified to strategise correct financing and proper cash flow management. This blog delves into the different kinds of funds that are not available for exporters, as well as the reasons for such limitations.
Although exporters often seek quick access to working capital for their operational expenses, short-term working capital loans, especially those with uncertain repayment terms, are generally not preferred. Most traditional lenders are discouraged from granting such loans to exporters due to the multiple risks involved, including liquidity and international buyers’ delayed payments.
- Short-Term Working Capital Loans with Uncertain Repayment Terms
For exporters, financing options like short-term loans with vague or flexible repayment terms create uncertainty for future cash flow. When the repayment schedules of such loans are not fixed, it creates even bigger problems, affecting the financial landscape hopelessly unpredictable. Such loans are not favoured by lenders, especially banks, as they do not give loans that are not backed by timely payments. Most lenders prefer stable financial metrics such as expected monthly revenues.
- Equity Financing for Exporters
Equity financing is the process of raising capital through the sale of shares of the company. Although the path of equity financing is widely common for start-ups and growing industries, this is hardly a viable option at all for exporters due to several reasons. Most exporters are either very small companies or established businesses, preferring to maintain control over their operations.
Exporters carry additional worries regarding equity financing due to dilution of control brought by the selling of shares. In the export sector, the difficult part is obtaining equity financing, especially because the investors are quite risk-averse. Market uncertainties, fluctuating exchange rates, and logistics are some reasons that deter investors from investing in an export business in the absence of strong assurances.
- Venture Capital for Exporting Firms
Venture capital funds should ideally support startups that have high growth scalability and have an important technology or business model. Some exporters fit the profile of a high-growth business, but most venture capitalists are more inclined towards companies that are showing ways to disrupt industries much rather than those more traditional sectors like agriculture, textiles, or manufacturing, which form a very large portion of India’s exports.
Venture Capital is commonly a closed door for exporters as it emphasises the high returns of innovative companies for investors. Exporting companies dealing with established goods or services do not fit in the fast-paced, highly risky nature of venture capital funding. Besides this, most export businesses do not have the scalability and exponential growth potential that such investors expect.
- Personal Loans For Commercial Endeavours
While personal loans are often taken to solve personal expenses, such loans are not advisable for funding a business or any of its export-related activities. The reason is that personal loans can be availed of only under strict limitations. Personal loans do not cater to either business expansion or operational expenses. Thus, relying on them for your export endeavours may land you in more complications over time for your business and personal finances.
Most lenders providing personal loans will request some form of personal guarantee from the borrower, and this may not be appropriate where an exporter is in urgent need of large financing for international dealings. Besides, the personal loans have restriction limits as far as the loan amount issued is concerned, and on average, they have higher interest rates than their business financing counterparts.
- Non-Recourse Financing in Export Credit
A significant component of the Non-Recourse Financing is that the business can borrow money without being personally liable for the amount if the business defaults on loans. Mostly, such financing is available within certain industries. But an exporter hardly finds such forms of financing, even if these loans are used to finance trade internationally. Thus, for small export-aiding export businesses, it is not very simple to get non-recourse financing, because international trading is very risky.
In international trade, a lender often requests a certain type of collateral or a personal guarantee to avoid risks. This happens because of the unpredictable nature of markets, combined with fluctuations in currencies and all the legal hassles involved. Thus, this reluctance does not allow the exporter to extend a non-recourse loan.
- Government Grants and Subsidies for Exporters in Specific Industries
Although they sometimes feature in government grants and subsidies, as happens for renewable energy or technology, there is no blanket application of them to all export businesses. For exporters in traditional industries, it may be nearly impossible to qualify for any such schemes, as governments usually determine this based on an alignment of goods with the strategic export interests of that government.
Furthermore, grants and subsidies provided by governments are often associated with eligibility and application procedures that can involve quite a lot of time-consuming paperwork. Export businesses may have difficulty operating through this in many cases, especially those that are very small or wholly new to international trade.
Conclusion
Figuring out the ways to get the right type of funding that conforms to your export-pricing needs, market targets, and risk features is essential. With appropriate tooling and knowledge-based resources, complex international trade would bring the possible expansion of your business into the international marketplace. An understanding of these limits helps businesses to plan their finances efficiently and avoid unsuitable options.
For exporters looking for smarter financial options, Credlix has an innovative alternative. Credlix focuses on invoice-based financing so businesses can unlock working capital without the traditional hassles of lenders and collateral. Whether you are a start-up or an established exporter, Credlix ensures the smooth flow of operations and cash management by helping you unlock access to needed funds.
