Invoice Bazaar Blog

How can a small business get financing from EXIM banks while importing capital equipment?

By Invoice Bazaar | January 17, 2022

As a small business owner, you should remember that it is easier to get finance for exports than for imports, and more so where EXIM banks are involved. So, if your business venture is creditworthy, the best way to get finance to import capital equipment is to approach the EXIM bank located in the country of purchase. That is because your imports will be exports for the supplier, and the concerned EXIM bank will be keen to grant you the loan for buying the said capital equipment. When importing the capital equipment, that transaction will also have to comply with the relevant export-import laws. Hence, EXIM banks will be the best choice to get financing for importing the said capital equipment.

Most EXIM banks give loans to international buyers against loan guarantees. This facility enables importers to buy goods and services for which it might be tough to get finance otherwise. Such loans available from EXIM banks in the country of the equipment’s origin are called buyer’s credit and are subject to the prevailing government policies. In most cases, sucha buyer’s credit or loan amount is not more than 85% of the contract value, with the balance (of around 15%) being brought in by the overseas buyer or borrower as advance or down payment. After the supplier of the capital equipment and its buyer decide the terms and the contract value of the transaction, the buyer (importer) and the EXIM bank will negotiate and finalize the Buyer’s Credit Agreement.

Then the importer (buyer) will have to submit a Letter of Credit (LOC) to the EXIM bank and also remit advance payment against the proposed import to enable the EXIM bank to disburse the eligible amount under the contract directly to the supplier upon receipt of acceptable shipping documents, as stipulated by the Letter of Credit or payment authorization from the overseas borrower. Once these formalities are completed, the supplier will ship the capital equipment to the buyer. After that, the overseas borrower (buyer) will have to keep repaying the loan installments and interest amount on due dates until full repayment, as per the terms and conditions of the loan sanctioned.