Why is it difficult to get export loan?

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>why is it difficult to get export loan?
Posted by: Kevin Jan 25 2004, 01:11 PM
I am having trouble securing a loan to finance my sales to South America. My biggest customers are in Venezuela and Colombia, but they take too long to pay and I can not finance those sales with my own cashflow. But the bank does not want to give me a loan. These are good customers that pay late but pay. Why don’t the bank sees the good relationship? what do you recommend?

Posted by: loanuniverse Jan 25 2004, 05:43 PM

I am sorry to hear that you are having trouble securing credit. Financing foreign receivables can be hard to do as many banks stay away from this type of credit. This does not mean that financing is out of the question, it just mean that you might have to look further to find a bank that is willing to take the extra risks, or maybe go with a different type of financial institution. Of course this means that with a smaller pool of lenders chances are that the rate and fees associated will be higher. These other companies might want to set you up with a factoring line, which would act similarly to a regular line of credit, but involves actually selling the invoice and being charged a discount. By the way, this type of arrangement is usually more expensive. However, sometimes it is the only avenue left to borrowers.

Now to your questions:

Why don’t the bank sees the good relationship?

Good relationships with your customers help mitigate risks specially when there is a long history of prompt payments. However, looking at it from the bank’s perspective, there are other risks in these types of transactions that are not present in regular receivable financing {also called invoice financing / asset based lending}. Those risks are:

Country risk: The US is still the most stable country in the planet. There is a reason why our 90 day T-bill rate is called the ”the risk-free rate”

Exchange Risk: Produce in dollars but sell in Bolivares or Pesos and you run the risk that the exchange rate goes north on your customers and they can not afford to pay. You also run the risk that there will not be a way for your customers to pay you if the local governments decide to regulate foreign exchange.

The bank loses control with the customers so far removed: in case of something going bad, it will be more difficult to work the loan.

what do you recomend?

Normally, I would say look for Eximbank financing, but Eximbank has Venezuela closed at the moment so that is pretty much out. Unless of course a facility to finance your Colombian customers would provide you with enough credit. The other ideas that occur to me are: 1- see if there is enough local business {domestic invoices} that could be financed with a regular line. 2- tap other types of business assets for financing or 3- try your luck with other type of financial institutions.

Hope this helps.
Author: Commercial Loan Underwriter