It’s a well-known reality that most of the products that are intended for mass appeal come into the US from overseas; therefore, starting an import business can be one of the most lucrative endeavors that you undertake. However, the set-up costs are real, and you will likely need outside financing. Specifically, there are three primary methods that bear fruit when it comes to import financing.
- Use Your Inventory to Secure Import Financing
You likely already have plenty of product stored up; the good news is that this can be employed as viable collateral to obtain financing from a lender. Inventory financing is generally quite costly; however, it is for this very reason that it is effective at getting a loan with good terms. One of the major benefits is that you are able to preserve your cash flow and thus your working capital for other business endeavors. The premier types of inventory financing that are effective for import financing are:
Field Warehousing
Inventory Liens
Floor Planning
Make sure to perform your due diligence when considering an inventory loan, since you must be certain that the debt you undertake can actually be serviced.
- The Asset-Based Lending Option: Factoring Receivables
Just because your product is selling successfully doesn’t mean you’re able to maintain a positive cash flow; customer payments may be delayed. In this event, you can employ a factoring company for a 2-3% administration fee; they will advance you 85% (on average) of the payments after you sell them your receivables. Now the company is responsible for collecting payment from your customers, after which they send you the remaining 15%. You are effectively paying a small fee to get your money faster and thus maintain a positive cash flow.
- Import Financing via Purchase Orders
If you are familiar with factoring, then understanding purchase order financing will be a breeze. In this case, you effectively turn your entire purchase order to a financing company; they then perform both the billing and collecting activities. Since the risk is greater (as well as the work) you can expect to have to pay more than the 2-3% required by factoring companies. It makes sense, however, if your profit margins are considerable.
