Types of import finance

Types of import finance

The types of import finance fall into 4 main categories:

There are also two sub-categories:

  • Purchase order, (“PO”), finance: Loan against a confirmed UK Customer order. Often tied to a Factoring solution to form a complete supply chain finance package
  • Bridging finance: No not for property! Used to finance the import of equipment or machinery as Asset finance cannot be used until the item(s) is physically in the UK

Immediately you should notice that with all the types of import finance available, import finance is:

  • NOT just invoice finance with purchase order finance tacked on if available. Many sites we’ve reviewed incorrectly imply that to obtain import finance an importer must have a confirmed buyer in the UK to whom an invoice can be raised after the goods have been imported.
  • NOT simply export finance in reverse. UK importers are the equivalent of a UK exporters overseas buyer. Consequently a UK importer has to arrange all of the financing of that supply chain in addition to negotiating the contract of supply.
  • NOT just structured Trade finance. Agreed it is a form of Trade finance but as the majority of UK importers are wholesalers, re-sellers, distributors and online eCommerce retailers importing for stock, pure structured Trade finance does not work for them.

The types of import finance available are varied and diverse. When chosen correctly they can:

  • Provide up to 210 days of finance before any repayments
  • Improve gross profit
  • Improve your ability to negotiate better price, volume discount, payment terms and credit with an overseas supplier
  • Reduce the amount of working capital required and avoid potential cash flow issues

Our Firm specialises in all types of import finance and focuses on supporting UK importers by financing their Business and their imports.

The skills we gained from over 24 years international experience and the process we use can help you find the right type and combination of import finance solution.

So, 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 the types of import finance available to UK importers below…….

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Types of import finance - Choice based on type of import:

Not all types of import finance are suitable for all types of import or importer.

Following are summaries of the four main types and how they can be used by an importer.

However, if you’re short of time the following table provides a handy review:

 

Import Type Revolving credit facility Business loan Asset Finance Invoice finance / Factoring
Finished goods Yes Yes No Yes
Unfinished goods Possibly Yes No Yes
Components Possibly Yes No Yes
Commodities No Yes No Yes
Perishables No Yes No Yes
Equipment Yes Yes Yes Yes
Machinery Yes Yes Yes Yes

Types of import finance – Summary of the 4 main types:

Having set the scene the following is a summary of each of the main 4 types of import finance including the key features you’ll need to make an informed choice as to which is right for your import business.

Revolving credit facility:

A revolving credit facility for UK importers improves purchasing power and cash flow

Little know by importers as Revolving Credit Facilities are provided only by a few lenders, and often overlooked as most business people search for a loan.

This type of import finance is possibly the most powerful and easy to use for the majority of UK importers.

A revolving credit facility 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.

Key features

£10,000 to £1M+

If used on its own, 120 days from supplier payment. If used together with an invoice finance solution210 days from supplier payment

At the end of the finance period. Usually there are no regular monthly repayments

Average 3-9% of trade.
Interest rates vary based on finance period, supplier & trade etc.

This is a form of unsecured lending so typically just a Personal Guarantee “PG” from the import Business Director(s).

Simple. Apply once for a facility limit. Use up to the limit any time for just one or multiple trades. Repay at the end of each finance period or earlier at your option.

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.

Business loan:

Types of import finance import business loans

When searching for types of import finance “Business Loan” is the default search, along with trade finance, for most importers.

There is a staggering amount of choice of type and lender available to fund the purchase of finished & unfinished goods, components, commodities, machinery, equipment or even services.

The choice of which import loan matches your specific business needs will be a combination of the following factors, (which we would assess during our review process):

  • Value of import
  • Regularity of import trade
  • Internal international trade experience & expertise
  • Age of your import business, (start-up to fully established)
  • Credit worthiness of your import business
  • Ability to service the debt
  • Cash flow profile during and post import

Additionally you may find the following articles in our Journal useful:

For a detailed review of the types of import loan available the following will be useful:

Key features

£1,000 to £1M+

1 month to 5 years

Regular weekly or monthly repayments. Most are a capital and interest type repayment, some are interest only with repayment of the capital at the end of the finance period by way of a lump sum or refinance.

Average 6-30% per annum, (0.5-3% per month)
Interest rates vary based on type of import loan, finance period, business profile, profitability etc.

For an unsecured loan a Personal Guarantee “PG” from the import Business Director(s).

For a secured loan PG + a formal charge over the business and, (if the loan is large), charge over a tangible asset like property.

If importing regularly and taking a short term loan repaid at the end of each trade cycle the new Application required for each trade can be cumbersome. A revolving credit facility could be a better solution.

If importing only occasionally or taking a long term import loan to “recycle” the finance internally just for trade, (own “in-house” credit facility), then reasonably simple.

The higher the loan amount the longer the Application, underwriting and security process.

No for Start-ups. A start-up loan would be the better solution.

Yes for young companies with >6 months trading history and ability to prove affordability.

Asset Finance:

Types of import finance - Asset Finance

Irrespective of Hire Purchase or Lease, Asset Finance is an ideal and cheap solution for any business to get the benefit of using an item of equipment or machinery whilst spreading the cost of that item over 3-5 years.

However, it is not strictly a type of import finance but more a type of finance for imported items.

The reason why is that unlike other types of import finance, asset finance lenders will not lend on the purchase of equipment or machinery until it is physically in the UK.

Therefore, if you need import finance to actually purchase equipment or machinery from an overseas supplier you should consider the most appropriate solution from:

Use one of those solutions to fund the import the equipment or machinery and then use Asset Finance to repay that facility or loan.

If you utilised our Firm to organise your import finance then the processes we use would include setting up both solutions concurrently for a seamless and simple transition from a short term to a long term type of import finance.

Key features

£5,000 to £1M+

3 to 5 years

Regular monthly repayments.

Average 8-12% per annum.
Interest rates vary based on type of equipment or machinery, finance period, business profile, profitability etc.

The Asset financed plus often a Personal Guarantee “PG” from the import Business Director(s).

Cannot be used to actually finance the purchase from overseas and import costs.

Provided the Asset Finance is arranged concurrently with the import finance, (consider import asset finance bridging), and an agreement between the import finance lender and asset finance lender is obtained then the process runs simply but the initial set-up can be complicated.

Consequently regular importers, especially Distributors, Re-sellers and Wholesalers of equipment or machinery would opt for other types of import finance such as an import loan and offer “asset finance available on request” to their prospective UK buyers.

Not generally. A business needs to show 12 months trading and prove it’s ability to meet the monthly repayments.

However, strong business plans with additional tangible asset security may be of interest to some asset finance lenders.

Invoice finance or Factoring:

Types of import finance invoice financing and debt factoring

Of all the types of import finance, Invoice Finance & Factoring is the ideal additional solution for any type of re-seller, (wholesaler, distributor, eCommerce trader, online retailer etc.), to add an additional 90 days of cheap funding.

Provided the imported goods are sold B2B and the UK buyer is credit worthy then the invoice raised on delivery to the importers customer can be traded to secure up to 90% of advance payment.

For established import businesses with a stable debtor ledger, (“Book”), of reasonable value, that asset can be leveraged strategically to secure finance to purchase imports.

Either an import loan would be raised secured against the entire ledger, or some of the invoices within it traded to release working capital early.

However, Factoring is a complicated import finance solution with 3 main types and many variables. For a full review read:

Key features

£1,000 to £1M+

30-90 days

At the end of the finance period.

Average 0.3-3% per month

The invoice traded plus, (if a “recourse” invoice finance solution), an undertaking to repay the amount advanced if the invoice debtor fails to pay within the finance period.

Single (spot) invoice finance is very easy and requires no contract or ongoing commitment to trade future invoices.

Full factoring and selective invoice discounting require quite an involved Application process to set-up but work perfectly once established.

Contact:

We hope you have found this review of the types of import finance available to 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.

Importing is your Business, financing it is ours.

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Based in the Midlands, UK. Serving Businesses nationally & internationally.