Short term business loans for importers

Short term business loans for importers

Assuming you can’t get trade credit from your export supplier, or import sales lag significantly behind cash flow, then short term business loans for importers can be useful for a number of purposes.

Of all the methods of import finance available, when & why would you use a short term business loan?

  1. To finance the 10-50% deposit on a piece of imported machinery or item of equipment that typically takes up to 3 months to build and deliver to the UK, (consider also import asset finance bridiging)
  2. Financing the 10-30% deposit towards goods, finished goods, components or commodities that are not available ex stock and require the export supplier to manufacture, procure or harvest them locally first.
  3. To fund the payment of HMRC Import VAT and Customs duties. There are a number of rules regarding the HMRC VAT payable on imports but assuming your business is liable to pay and  quoting those rules “Your goods will not be released by customs until you’ve paid all duty and UK VAT prior to any re-sale or benefit use then this can have a significant effect on cash flow.
  4. To finance the entire purchase price of any type of import which you are certain will be capable of being repaid within 1-6 months of receipt into the UK.

Short term business loans for importers are especially useful for businesses that import occasionally, (we suggest 1-2 times per year max), whether for own business use or re-sale.

If importing regularly as a wholesaler, re-seller or distributor then a revolving credit facility may be the better option for the following reasons:

  • One time Application & approval process, (saving time & repeat costs)
  • Then only pay for the amount used, when used and for the time used

In the context of this options review short term business loans for importers means an unsecured loan for a term of 1-12 months maximum.

Whilst longer term, secured business loans are available the assumption for this review is that the finance will be repaid quickly out of the profits of future sales of the imported item(s), or by some other form of specialised finance such as Asset finance for machinery and equipment.

There are many commercial finance providers of short term business loans, each offering varying solutions, costs, interest charges and acceptance criteria 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 short term business loans for importers below…….

Short term business loans for importers – Key facts:

Loan feature Key facts
Finance limit £1,000 – £500,000
Type of finance Unsecured fixed loan amount
Facility term 1-12 months
Finance period Usually the term agreed at the outset of the loan. However, most short term business loan lenders allow early repayment and some without penalty
Repayment method Regular daily, weekly or monthly repayments in arrears
Interest rate Average 1.5-3% per month
Interest rates vary based on finance period, Applicant, Business financial profile etc. (see our tips to get the best interest rate)Many lenders now calculate the interest rate daily on the current balance so early repayment will reduce the overall APR%
Other costs Application fee: £250 – £750 average.

Possible early repayment penalty.

Your 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 You decide as your Business will have the “cash” in your bank account.

So by Letter of Credit or Bank transfer in local currency is most common.

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 5-15 business days from submission of Application.

(Ignore the marketing hype on the various lender websites offering “instant decision” or “cash within 24-48 hours”. Whilst the data gathered in an online application enables a lender to make a “yes / no decision in principle”, there is always an underwriting process with support document submission so the best timeframe we’ve experienced is 5 days “cash in client bank”).

Restrictions Must be a UK Company (Sole traders & Partnerships included).

Minimum 3 months trading history (If a Start-up there are a few alternative options)

No recent and significant adverse Business or Director credit history.

Proof of ability to service the regular repayments out of monthly cash flow.

Maximum loan will be 2x average monthly revenue or an average of 10% annual turnover.

Some lenders prefer the Director(s) providing the PG are a homeowner(s).

 

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Short term business loans for importers – The Pros & Cons:

Short term business loans for importers have, in our experience & expertise, the following Pros and Cons compared to other forms and methods of import finance:

Pros:

For regular importing a revolving credit facility is better. However, if not used regularly that facility would be withdrawn.

Therefore, if your business imports 1-2 times per year then short term business loans for importers is probably the better solution.

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 a trade finance lender may require the imported goods to be delivered to, and despatched to your customer from, their warehouse.

That is not the ideal scenario for ecommerce B2C sellers with high volume daily orders.

Therefore if you are a start-up or inexperienced importer as part of our commercial review process we may suggest consideration of  short term business loan if access to stock and stock control is vital.

The majority of short term business loans for importers require just a personal guarantee from the import business Director(s).

Apart from the UK Government & HM Customs imposed controls, bans and quotas the loan can be used to finance the purchase of any type of import, of any value up to the amount lent, from any origin.

Unlike revolving credit facilities which start at £10,000+ you can apply for a short term loan for as little as £1,000.

All trade finance facility lenders will pay your supplier direct. Consequently you will have to provide them with details of the purchase order and they will have direct dealings with your supplier.

By taking a business loan you will have direct control over the payments and dealings with your supplier and not the 3rd party finance company.

 

Cons:

Most revolving credit facilities require repayment of the finance advanced at the end of the finance period of between 90-210 days.

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. Great for cash flow and low use of working capital.

Short term business loans for importers require weekly or monthly repayments which may not suit your sales cycle and or cash flow profile.

If your import business already has finance solutions such as loans, factoring, bank overdraft and asset finance then a further short term loan may be denied with by the lender as your business is over geared or due to the terms & conditions of the existing finance agreements.

Unlike a revolving credit facility your business will receive the loan funds and hence you’ll pay your supplier direct.

Therefore your business will 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.

If importing goods once only for own Business use or only a couple of times per year, then a short term import business loan or other method of import finance may be cheaper to apply for and set-up.

However if importing regularly then a revolving credit facility would probably be a better solution for a number of reasons including cost.

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.

Unlike a revolving credit facility you must decide upon the fixed amount you need to fund your imports and receive that full funding in one finance transfer. If you need more finance a new Application will be required.

If your import business trades regularly throughout a year then you’d have to make a new loan application for every trade requiring finance which incurs both time and application fees.

If you are able and opt for a revolving credit facility then the lender will guarantee to your supplier payment for the goods on delivery, (whatever delivery terms you have agreed).

However with short term business loans for importers your supplier is reliant upon your business and its credit worthiness to guarantee payment. That certainty will increase if you have an established trading history and/or are an established business with proven credit file.

Otherwise the only way to guarantee payment to your supplier as a young business is to pay a deposit, or pay in advance or use forms of documentary credit such as an irrevocable letter of credit.

A revolving credit facility and short term business loans for UK importers are both forms of unsecured commercial finance with similar monthly interest rates.

However, with a revolving credit facility there is only one Application process & fee and then the facility can be used multiple times whereas with a short term loan an Application plus fee must be made every time finance is required.

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.

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.

You would then have typically a 3-5 year asset finance agreement at a competitive 8-12% interest compared to short term business loans for importers.

Short term business loans for importers – Frequently asked questions:

Below is a list we’ve compiled from the questions prospective clients have asked us regarding this method of import finance.

If your question is not in the list then please contact us or email growth@ashwoodpartnerships.co.uk

Short term business loans - FAQ's:

Can I repay early?

Yes. Most providers of short term business loans for importers allow repayment after an initial 1-3 month term without penalty.

The interest rates seem very high?

Yes & no. This is unsecured lending from the alternative commercial finance sector so the interest rates will be way above bank base rates. However, remember that most lenders of short term business loans for importers calculate the interest daily on the reducing balance and don’t charge early repayment penalties so the overall cost of the loan will not be the quoted % APR if you don’t use the loan for the full term.

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 loan just for financing imports?

No. A short term loan can be used to finance business purchases from BOTH overseas and UK suppliers.

Is the loan just for financing one overseas export supplier?

No. You can use the loan to finance as many trades from as many suppliers as the amount lent allows.

Is this loan just for importers?

No. Our Firm specialises in financing imports and import businesses. However, a short term business loan can be used to finance any type of supply chain requirement.

My Business already has finance. Is that a problem?

Possibly. The lender will take into account how much finance your Business is committed to, repayments, affordability of additional finance and any restrictions the current finance agreements impose on your Businesses ability to commit to further finance.

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 loan requested.

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 short term business loans for 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 loan 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:

  1. The export supplier will be adding further profit margin to the CIF costs;
  2. 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;
  3. You cannot negotiate better payment terms, discounts and volume deals with your supplier if they are “financing” your Business.

Using a short term business loan 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?

No. The majority of short term business loan lenders require a minimum 3-6 months trading history. There are other solutions available for start-ups.

What is the maximum period of finance?

1-12 Months. There are lenders offering 24 months but equally there are long term secured loan providers offering 2-5 year terms and they’d be cheaper so we assume 12 months as the limit for unsecured lending.

Contact:

We hope you have found this review of short term business loans for 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.