Starting an import business is a profitable small business venture. The question is often how to find start-up money and how to finance a small business, including an import operation. A global business, such as an import export business, requires special business finance skills. It can be a profitable business if you can find the right type of financing.
Imports are goods and services that cross into a foreign country for resale. An import business can be a profitable business because of the low-cost goods available for import from foreign countries like Korea, China, and Mexico. The cost of products from these countries is so low that they can be resold for a nice profit margin.
Given the recession, adding imports to the products your small business offers may make the difference between failure and survival. Even though you have to learn all about importing and selling products, and there is a lot to learn, it may be worth it to your small business.
It may be difficult to get bank financing for an import business. As a result, you may have to turn to alternative methods of financing a small import business. Here are three possible methods of financing your import business. It may be necessary to use more than one of these methods, including asset-based loans, in order to obtain the financing you need.
Factoring accounts receivable is simply selling your credit accounts or accounts receivable to a factor, who may be a commercial finance company, a bank, or an accounts receivable financing company. Accounts receivable are sold at a discount, usually 80-90% of the face value of your credit accounts. The factoring company gives you an advance payment, for a small fee of 2-3%, for the accounts you would normally have to wait on for payment. Factoring accounts receivables is called an asset-based loan.
You can use your inventory to get a loan to finance your import business. Even though inventory financing can be expensive, it is a very effective way of financing this type of business activity. You use your current inventory to secure a loan to allow you to buy the imported inventory that your customers desire. This allows you to increase your inventory without impacting your cash flow as long as you think you can service your debt.
There are three types of inventory financing you can pursue depending on your needs. You can use a blanket inventory lien, floor planning, or field warehousing. Using inventory financing to get a loan makes it an asset-based loan.
Purchase order financing is similar to factoring your accounts receivables. It goes one step further. You take your invoices or purchase orders and assign or sell them to a commercial finance company. The commercial finance company assumes the risk and the task of billing and collecting. After the products are manufactured, the commercial finance company collects from the customers, takes its cut of the proceeds, and pays you the profit.
Purchase order financing is certainly not as cheap as a bank loan. If banks aren't loaning money, however, it is an option. If your profit margin is high enough on the goods you are importing, then purchase order financing may be for you. It is important, with purchase order financing, that you have a good supply chain and creditworthy customers.
These are three tips you can use if you have an importing business and can't get bank financing or if you want to add importing to your current small business to diversify and can't acquire bank financing.