Revolving credit facility for UK importers
A revolving credit facility for UK importers is similar to a traditional bank overdraft but with much higher lending limits and no regular monthly charges.
A key feature of these revolving credit facilities are that your import business pays ONLY:
- for the amount of finance used
- when used
- for the time used
It’s like a trading with your overseas suppliers on “open credit” terms but without being tied to any single supplier or country of supply.
Your import Business is in complete control of the payment and credit terms agreed.
A revolving credit facility for UK importers enables an importer to pay for imports using “other peoples money” and have re-sold the imported goods for a profit before repayment is due.
Imagine the improvement to your cash flow, the supply terms you could negotiate and the size of deals and trades you could capture with such a revolving credit facility supporting your Business!
A revolving credit facility for UK importers is possibly the most effective and efficient method of import finance currently available.
There are various commercial finance providers of these facilities, each offering varying solutions, costs and interest charges which we will cover in detail in this article.
If you import goods, components, commodities, services, equipment or machinery into the UK and think you might require finance support now, or in the future, continue reading.
We’ll cover everything you need to know about a revolving credit facility for UK importers below…….
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Revolving credit facility for UK importers – Key facts:
|Facility feature||Key facts|
|Finance limit||£10,000 – £1M+|
|Type of finance||Revolving credit.
Limit is agreed at Application & Business can use up to that limit for just one or a number of trades
|Facility term||12 months. Usually renews automatically if the facility is used within the term|
|Finance period||If used on its own, 120 days from supplier payment. If used together with an invoice finance solution, 210 days from supplier payment|
|Repayment method||At the end of the finance period. Usually there are no regular monthly repayments|
|Interest rate||Average 3-9% of trade.
Interest rates vary based on finance period, supplier & trade etc., (see “Notes” at the foot of this table).
|Other costs||Single, one time, Application fee: £0 – £750 average.
Importer pays any deposit agreed to supplier, average 10%. (Although some lenders will also finance deposits).
Letter of Credit set-up fees or money transfer fees, (whichever is used).
|Types of import financed||ANY.
Goods, (finished, unfinished & perishables), Components, Commodities, Equipment, Machinery, even Services (including the freight, customs duty & VAT).
|Supplier payment||By Letter of Credit or Bank transfer in local currency.|
|Security required||Typically a Personal guarantee (PG) from the Director(s)|
|Application process||Business supply chain review by our Firm.
Formal Application(s) & underwriting.
|Approval timescale||Typically 10-15 business days from submission of Application.|
|Restrictions||Must be a UK Company (Sole traders & Partnerships included).
No recent and significant adverse Business or Director credit history.
Proof of ability to repay finance at end of the finance period.
Interest rate agreed will depend upon a mixture of: Type of import, experience of importer, value of import, whether import is for stock or immediately re-sold against a confirmed UK purchase order and import Business financials.
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Revolving credit facility for UK importers – How it works:
Assuming the facility has already been approved and is in place ready to use, the process is very simple:
- Importer agrees the Supply contract with their overseas export supplier;
- Importer sends a PO to the supplier and copy to revolving credit facility lender;
- Importer pays deposit, if agreed,(remember with this kind of facility the lender guarantees payment so you could negotiate simple 100% payment on delivery terms);
- Export supplier “delivers” goods according to the supply contract terms agreed. (Delivery means according to the Incoterms form of delivery agreed, such as Ex-Works, FOB, CIF etc.);
- On delivery facility lender pays the supplier and the finance period starts;
- Importer repays the finance at the end of the finance period agreed, (between 30-210 days).
Use only as much of the revolving credit facility for as long as required and pay only for that finance period.
Most revolving credit facilities require repayment of the finance advanced at the end of the finance period.
For example, if your overseas export supplier was paid day 1 and you’d sold sufficient of those import goods on day 60 then you’d repay the advance on day 60 including the interest accrued.
The majority of revolving credit facility for UK importers require just a personal guarantee from the import business Director(s).
Because most facilities require only a PG from the Director(s) rather than formal charges over the import Business, a revolving credit facility for UK importers can co-exist with all existing business finance.
Also no permission or waiver from existing finance charge holders is usually required.
Apply for a revolving credit facility once and when approved use it as many times as required.
Compare this to a typical import business loan where you would have to apply each time finance was required.
Apart from the UK Government & HM Customs imposed controls, bans and quotas the facility can be used to finance the purchase of any type of import, of any value up to the facility limit, from any origin.
Whatever payment method is agreed with your overseas export supplier the facility lender will pay that supplier direct.
Therefore your business will not have to worry about converting sterling into your suppliers local currency, risking losses as exchange rates alter between supply and sale, operating separate currency accounts or getting involved in currency hedging.
Unlike an import business loan where you apply for a defined amount of finance, the facility limit on revolving credit facility for UK importers can be simply increased as your import Business and trade grows.
Obviously an increased limit will only be granted by a lender if you’ve operated and repaid your facility properly over the finance periods taken.
This guarantee of payment provides you with some unique advantages:
- You can probably negotiate a single payment at delivery and hence avoid paying a deposit
- Avoiding a deposit payment improves your cash flow OR if the deposit is financed avoid those finance charges
- Improve business cash flow generally as, depending on the type of import and your trade, you will probably have sold the item or sufficient number of goods before the finance has to be repaid
- Payment for that item of goods is therefore out of new profits not existing working capital
- You can negotiate better unit prices & discounts with your supplier as they know they will get paid on delivery
- You can grow your business and capture larger business opportunities with a revolving credit facility for UK importers supporting your ambitions
Most lenders will not consider establishing a revolving credit facility for less than £10,000.
In those circumstances we’d suggest our Client considers other forms of import finance, especially a small, short term business loan.
As a whole of market, independent import finance broker and as part of our Business first, funding second Client engagement process, our Firm would always propose all suitable import finance solutions.
If importing machinery or equipment to be used in your own Business, (rather than for distribution or re-sale), then consider using a hybrid facility solution: Import Asset Finance Bridging finance.
We would structure that import deposit finance alongside a UK Asset finance solution, (Lease or HP as appropriate), so that the cheaper Asset finance solution would repay the deposit finance once your equipment or machinery had been delivered into the UK.
A revolving credit facility for UK importers is a form of unsecured commercial finance.
The lender accepts a high degree of risk as they only have your PG and promise to repay at the end of each finance period.
Therefore compared with a secured, long term import business loan for example, the interest costs of between 3-9% per Trade finance period are high.
However a secured, long term business loan would only be appropriate for established companies that have the infrastructure and expertise to establish an in-house trade account to keep and recycle that finance purely for trade within that account.
The flexibility of a revolving credit facility for UK importers often outweighs the higher cost per trade, especially for young, growing and expanding businesses.
As the lender pays your supplier direct you will have to provide them with details of the purchase order and they will have direct dealings with your supplier.
Whist minor, this does introduce a 3rd party into your supply chain.
The limit granted for a revolving credit facility for UK importers will, as discussed in this article, depend on a number of factors.
If you’re importing goods for stock to sell retail, wholesale or ecommerce, without any benefit of a PO, (for all or part of the goods), AND your Business is a start-up or inexperienced importer, then the lender may require the imported goods to be delivered to their warehouse.
As you sell the goods, shipment will be from that warehouse, rather than your own.
This will probably be a temporary solution for a few trades until your business establishes its credit worthiness and experience which reduces the Lenders risk. Remember these revolving credit facilities are a form of unsecured commercial finance.
Revolving credit facility - FAQ's:
Do you need to be a homeowner?
No. No security is taken over your personal assets, and in most cases no formal charge or security is taken over your import Business. Security is usually just a PG. However that PG must have some “worth” or “value” behind it.
Is the facility just for financing imports?
No. A revolving credit facility is based upon a traditional overdraft and so can be used to finance business purchases from BOTH overseas and UK suppliers.
Is the facility just for financing one overseas export supplier?
No. Once implemented you can use the facility to finance as many trades from as many suppliers as your facility limit allows.
How does the lender pay my overseas supplier?
Some lenders only use Letters of Credit, (“L/C”), whilst others offer both L/C and “cash” by bank transfer in local currency.
In addition to the payment gurantee that either payment method offers to your supplier. An L/C allows your supplier to raise local supply chain finance for components or commodities needed to fulfil your order. (A further negotiation opportunity as your supplier does not need to use working capital to fulfil your order, but can leverage local finance money).
Can I draw the money myself and pay the supplier?
No. The facility lender pays your supplier direct.
Is this facility just for importers?
No. A revolving credit facility can be used to finance any type of supply chain where an order exists.
Also this kind of solution can be used by overseas suppliers to grow their UK export sales by offering “buyer credit”. For more details please contact us for a no obligation discussion.
My Business already has finance. Is that a problem?
No. Provided your Business can afford to service extra debt from time to time then a revolving credit facility for UK importers can be implemented alongside any current finance your Business has. No permission or waivers are required from your existing finance providers which also speeds implementation.
Is poor credit a problem?
Possibly. It will depend on the type of credit default, how recent, what value, personal or Business and what for. Then all that information would be compared to the size of facility requested and type of trade etc.
We consider all this as part of our initial process and IF it is likely to be a problem we will tell you at the outset and/or find alternative solutions or improvement strategies. A “no” is never no forever!
I’m a Sole Trader who imports, can I apply?
Yes. Some lenders will deal with Sole Traders. We deal with all providers & lenders of a revolving credit facility for UK importers so if your Business is credit worthy and your proposed import trade viable we will be able to source a lender for your Business.
Can the facility be used to finance any type of import?
Yes. But sometimes other forms of import finance solution will be better suited to what you need, for instance one off trades or importing an item of machinery for own use. When dealing with you as a prospective client we will ensure we offer you only the correct potential solutions that match your Business and needs.
Can the finance be used to pay my Freight, duty etc.?
Yes. Many smaller importers opt for CIF supply contracts as they don’t have to pay for the freight, insurance and carriage until the goods are actually in the UK.
However this is a VERY EXPENSIVE way of preserving working capital as:
- The export supplier will be adding further profit margin to the CIF costs;
- The UK freight agent will be working for your supplier. High UK clearance and release fees which you as importer pay, which are then split and shared back to the exporter, are common;
- You cannot negotiate better payment terms, discounts and volume deals with your supplier if they are “financing” your Business.
Using a revolving credit facility for UK importers to finance your entire supply chain where you are in control of that supply chain and the payments required is a far cheaper & transparent solution.
Our Business is a start-up, can we apply?
Yes. A facility lender will not provide you with a facility without your PG having value and your proposed trade being viable. Ideally the proposed trade should be backed by a PO for the goods or item(s) to be imported. However being a start-up is not a barrier to acceptance unlike other forms of commercial finance.
What are the regular costs and charges?
None. The beauty of a revolving credit facility for UK importers is that you only pay for what finance you use, when you use it and for the time used. If you’re not using it then there’s nothing to pay.
What is the maximum period of finance?
120-210 days. If used “stand alone” then 120 days. If the import trade is backed by UK customer PO’s then we can utilise import invoice finance to pay off the facility finance at the end of that finance period and take a further 90 days of advance from the invoice factoring lender.
As part of our solution process we would implement both solutions together prior to the trade commencing.
Is this facility “Trade finance”?
Yes and No. Yes it is finance that is used mostly for import trade. No in that Trade finance is a term commonly used to describe export trade which is the reverse of import finance where the UK business is now the exporter to an overseas importer.
We hope you have found this review of a revolving credit facility for UK importers useful.
If you think it would be a solution for your Business now, or in the future, please contact us using the forms on this page to arrange an informal, no obligation, discussion regarding your Business, ambitions, the proposed trade and your unique circumstances.
We’d love to hear from you.