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2 Access to finance
This document summarizes various trade financing products and strategies for small businesses seeking financing. It discusses short term financing tied to orders, mid and long term financing tied to business strategy. Basic export trade finance products include letters of credit, advances, and loans. It provides examples of how advances and loans can be used. The document also discusses the differences between loans and lines of credit, and different types of letters of credit. It provides tips for small businesses on developing guarantees to improve chances of obtaining financing, and strategies for building a track record and strong financing application.
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2 Access to finance
- 2. Presented by StephanieDiakité, CATEK Oct. 31, 2010 – USAID-SIAO Seminar Series Ouagadougou, Burkina Faso
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- 5. BASIC EXPORTTRADE FINANCEPRODUCTS Letters and Lines of credit Advances Loans
- 6. ADVANCE Example – client advanceto acquire raw materials for processing LOAN Example – commercial loan to acquire and install processing equipment
- 7. Revocable letter ofcredit LC can be revoked by the issuing bank without the agreement of the beneficiary. Irrevocable letter of credit Cannot be cancelled or amended without all the parties agreement. Standby letter of credit Guarantee of payment. If the beneficiary does not get paid by its customer, it can then demand payment from the bank by forwarding a copy of the invoice that was not paid and supporting documentation. Revolving letter of credit It is established when there are regular shipments of the same commodity between supplier and customer. Eliminates the need to issue an LC for each individual transaction.
- 8. • Lump sumof money • Repayment by installments over a defined period of time (capital + interest)Loan • Maximum amount of money available • Can be used as needed • Repayment is flexible (capital + interest) • Capital reimbursed becomes available for use Line of credit LOANS AND LINESOF CREDITARE DIFFERENT!
- 9. Traditional Channels Customers Commercial banks Developmentbanks Specialized public services Equity partners Other Channels Savings and loan cooperatives and associations Microcredit organizations transitioning to savings and loan organizations Personal and/or professional contacts and acquaintances
- 10. Buyers and pre-exportsuppliers needs assurances before they will advance funds on purchasing or supply Banks and other financial institutions require hard and soft guarantees of recovery
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- 12. Work with andthrough recognized industry channels Work with financial institutions that know your industry Get in the financial services loop Use financial instituitons that have guarantee and/or special lending programs
- 13. Transparency and good governanceare key Reinvesting in your business will enable you to grow Opening your capital to partners with capacity you have not yet build is a financing option Submit clear, credible applications for financing
- 14. Start ups neednot apply is very prevalent. Until you have a track record, you may have to depend on advances and informal lending channels. Document your successes! Build a financial services history BuildingTrack Record
- 15. Prevailing regulations require hardguarantees up to and often exceeding 100% Negotiate contract security with your purchasers Tap into development guarantees Domicile receivables
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- 17. Background,experience and market Projectedsales for the fianancing period Conditionsof sale Financingneeds for the period Projected financial results Practicalmeasures for re-payement of the financing Annexes – Sales contracts and letters of intent,Guarantees
- 18. Presentation of the Business Productsand Services Existing Resources Short, mid and long term projects Expected results
- 19. Learn more aboutthe USAID West AfricaTrade Hub project at www.watradehub.com Stay in touch with all of our activities and results: Subscribe to the USAID Trade Hub project newsletter, Tradewinds. Send an email to info@watradehub.com or simply enter your email address on the website!