For most aspiring entrepreneurs, raising the amount of cash to start or purchase a business is the most difficult part. Taking an inventory of your personal finances is your first move when considering the running of your own business.
With enough savings, you can certainly launch a new business. The best thing about this is that you do not have to sell a part of the company to a private equity firm.
If you have sufficient savings to get things off the ground, you can then use your profits to fund growth. Though coming up with a business idea is not easy, you will definitely become successful if you have the right mindset.
When the time has come to expand your business locally or globally, though, your profits may not be enough to run your business operations smoothly. Good thing is that the best business banks offer growth solutions you can take advantage of.
1. Export and Import Solutions
Documentary Collections
This refers to a payment method wherein an exporter collects payment from an importer via an intermediary bank that facilitates the smooth flow of title documents and payment.
The bank of the exporter will solicit a payment from the importer by sending a cover letter and title documents to the bank of the importer. The importer will then be advised about the bill. Once the importer pays the bill, the importer’s bank will send the payment to the exporter’s bank. After the payment has been confirmed, the exporter’s bank will credit such funds to the exporter.
Documentary Credits
Documentary credits are an internationally recognized payment method. This is a formal undertaking that is issued by a bank. The seller must comply with all the terms of the credit. Usually, this is an irrevocable document that can’t be altered or canceled without the knowledge and consent of all parties involved.
Documentary credits are the most acceptable payment instruments around the world for the sale of products between traders in various countries. Discounts can be settled for items in both local and foreign currency. Also, interests may be charged at a reasonable rate for the number of days outstanding.
Import and Export Loans
Import and export loans offer many benefits to businesses. These loans can improve your cash flow, enhance your bargaining power with foreign suppliers, and allow you to pay suppliers immediately. In turn, your business credit rating and reputation will improve.
Generally, these loans are based on the products being delivered and the proof of transaction agreement. Due to the fact that they depend on the transactions, the lender places less importance on the credit history of the business applying for such loans. However, the lender must see that the business has been operating for at least one year and has previously engaged in similar transactions.
2. Guarantees
A bank guarantee is a promise to make a payment to a third party depending on certain terms. Oftentimes, the third party asks for a guarantee of payment before goods or services are given to another party. The bank will guarantee this payment using a contractual obligation.
Here are the different types of bank guarantees:
Performance Guarantee
When working on a tight deadline, the buyer may charge penalty fees when the terms of the contract have not been fulfilled on a specified deadline. An added fee will be assured by the bank when delays or errors happen.
Standby Letters of Credit
Standby letters of credit are a guarantee of payment issued by a reputable bank on behalf of a client. This is used as payment of last resort if the client fails to fulfill a contractual commitment with a third party.
This is created as a sign of good faith during business transactions. It is also proof of the creditworthiness and repayment abilities of the buyer.
Advance Payment Guarantee
An advance payment guarantee acts as an insurance to refund the deposit once the contract defaults or some contract terms are not fulfilled.
3. Open Accounts
An open account transaction refers to a sale where goods are shipped and delivered before payment is due. This is recommended for use in competitive markets to attract customers using one or more trade finance techniques and in secure trading markets.
This growth solution is more advantageous to importers when it comes to cost and cash flow. It is, however, considered too risky for exporters because the buyer could default on payment obligations once the goods are delivered.
Starting or expanding a business is not easy. Good thing there are different growth solutions both importers and exporters can use. But always make sure to work with the best business bank to guarantee success.
