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Export Loan – Preshipment and Postshipment

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Export Loan – Preshipment and Postshipment

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Export of goods plays an important role in the development and employment generation for the exporting country.  The government of a country through its central bank provides finance to the business houses that undertake the export of goods, to ensure the export orders are completed on time, and no deal falls through for the lack of funds.

Export Loan

The turnaround time of a normal export cycle is around 3-5 months, and so, to keep the business operational, working capital requirements can be fulfilled by availing export credit.

Pre-shipment finance

Pre-shipment finance or packing credit is available to the exporter on procurement of a confirmed export order or the irrevocable letter of credit from the importer.

The pre-shipment credit is generally sanctioned for the procurement of raw materials, labor, and supplies so that the export order for the goods can be fulfilled on time.

Somme of the salient features of pre-shipment finance are as follows:

  • Self-liquidating finance, in the sense, the amount loaned is for the fulfillment of a specific order, and once the order is complete, the loan is repaid.
  • The period of credit is a maximum of 180 days, which can be extended by 90 days if need be.
  • The interest rate charged is much lower than the one charged for cash credit or overdraft facility.This makes you more competitive in the market.
  • Major forms of pre-shipment credit include:
    • Extended packing-credit loan
    • Secured shipping loans
    • Advances against back-to-back letter of credit
    • Advances against export incentives and duty drawbacks
    • Pre-shipment credit in foreign currency

Post-shipment credit

Post-shipment credit is also extended to fill the working capital gap between the shipment of the order and the actual receipt of the proceeds.

It is extended to the exporter or the person in whose favor the export documents are transferred.

The major forms of post-shipment credit include:

  • Export bills purchased, discounted, or negotiated
  • Advance against bills sent for collection
  • Advance against duty drawbacks receivable

At ABV, we have experts in export finance, who can advise you on your requirements for export credit and handhold you through the process of procuring export loans.  You can rely on us to take out all the stress of timely submission of documents to banks and other agencies.

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