Bank Loan for Export Business

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Bank Loan for Export Business

India is the fastest-growing large economy in the world with billions worth of goods and services exported each year to various countries across the world. The Indian Government is actively promoting Indian Exports through various campaigns like “Make in India” and promoting the starting of export business in India. In this article, we look at the types and availability of bank loan for export business in India.

Starting an Export Business

An export business can be started in India by registering a Private Limited Company or LLP and obtaining the necessary tax registration such as TIN Registration or GST Registration. In addition to the business registration and tax registration, export businesses must also obtain the Import Export Code (IEC). More information about starting an export business can be found in the IndiaFilings Learning Center article on “Starting an export business in India”.

Export Business Banking

Banks play an important role in the export business as all payments must be received through the Bank. Therefore, it is important to choose the right bank having Foreign Trade capabilities while opening the bank account for the export business.

Infographic on Bank Loan for Export Business

Bank Loan for Export Business

In addition to offering facilities for receiving payments and current accounts, banks can also offer loans to the export business. For export businesses, bank loan in the form of term loan and working capital. In addition to facilities like cash credit or letter of credit, banks can also extend the following types of bank loan for export business:

Packing Credit or Pre Shipment Credit

To help the exporter complete the export order, packing credit loan can be extended by the bank. Packing credit is a type of bank loan for export business provided to an exporter for financing the purchase, processing, manufacturing or packing of goods required to export from India. Packing credit is a form of working capital loan provided on the basis of export order from an overseas buyer. Packing credit loan can be extended by the bank based on the time required to complete the export order. If a packing credit loan is not adjusted by submission of export documents within 360 days from the date of release of the loan, a higher interest rate may be chargeable.

Post Shipment Loans

Post shipment loans can be sanctioned for an exporter from the date of shipment of goods or services to the date of realization of payment from the exporter. Therefore, the exporter would not have to wait for payment from the customer and can obtain funds from the bank on the shipment of the goods or service. Post shipment loans can be of three types:

  • Export bills purchasing or discounting or negotiating
  • Loan against export bills for collection
  • Loan against duty drawback receivable from the Government.

Export Credit Refinance Scheme

Reserve Bank of India (RBI) also provides export credit refinance facility to Banks on the basis of bank’s eligible outstanding rupee export credit both at the pre-shipment and post-shipment stages. Banks can extend a loan of up to 15% of the outstanding export credit eligible for refinancing as at the end of the second preceding fortnight. Export credit refinances scheme must be repaid within 180 days there is no collateral requirement.

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