Finance and Insurance
Exporting can be a costly undertaking for any business but for small to medium sized companies, the financial commitment is often daunting. However, careful planning and exploring all options can limit the financial risk.
As a starting point, your financial export related activities can be divided into three key areas:
Financing Your Activities
When planning to export your product or service you will need to finance the additional activities that help to ensure a successful export drive. These may include:
- conducting market research, visiting markets and identifying potential customers and partners;
- planning entry strategies for new markets and developing sound Business Plans;
- expanding production capacity to meet export demands;
- changing packaging and labelling;
- employing specialised staff;
- increased advertising and promotional exercises including samples;
- insurance and shipping;
- extended payment terms offered to buyers; and
- investigating possible duty drawback.
Your first step should be to roughly calculate all additional anticipated costs and evaluate the impact this will have on your cash flow and day-to-day operations. This will enable you to determine the amount of additional funds you may require, and get you thinking about how these funds should be raised.
The work that you do in this section is applicable to the calculations required in the Are You Export Ready? section and should be included in the development of your export strategy.
The best way to finance export development is through funds generated by the business. This either means generating sufficient cash to fund the new venture or changing the way finance is managed, such as selling assets and leasing them back or factoring debtors. This option minimises the cost of raising finance and avoids the loss of some proportion of ownership of the business.
If internally generated funds are not available, other options include:
Raising Equity Funds
Selling shares (part of the business) is one way of raising equity funds. This can range from taking in a new partner with a minority interest (less than 50% of the issued capital of the firm); selling shares to a number of new shareholders (including employees); or a public float where investors are free to buy and sell shares on the open market for the current price. "Going public" is a complicated and time consuming process that normally requires professional advice and is not an option for all businesses.
Venture Capitalists are inclined to take a less conservative approach than banks but usually seek a higher and quicker return on investment. Venture capitalists generally require shares in the venture, at least for a few years, as part of their financing package The following links will be of assistance in contacting venture capitalists:
Debt Financing
If you decide to obtain debt financing, commercial banks will typically look for the following information in order to evaluate a proposal:
- the amount and purpose of the loan;
- experience / qualifications of the proprietors;
- financial reports covering at least three years;
- details of existing debt / relevant contracts;
- a business plan which includes a written export strategy;
- a budget showing sales, expense and profit projections;
- cash flow projections;
- the impact of foreign currencies and any hedging arrangements in place;
- preferred repayment terms;
- the business's trading history;
- security available for the loan;
- working capital requirements;
- the timing of the financing required (ie. pre- or post-shipment);
- whether the export transaction will involve a Letter of Credit; and
- if debtor insurance is in place.
Financial Assistance from Export Finance and Insurance Corporation
Overseas buyers often require that exporters supply them with bonds as security for advance payments or in support of their performance obligations under a contract. If you are involved in an export project, your bank limit has been reached, and if you meet the eligibility requirements, EFIC can provide bonds for your export contracts.
EFIC levies premiums, fees and charges in respect of their services. These will be discussed when providing you with an indicative quotation for your export project.
Contact
EFIC for further information.
Grants
You may decide that the additional funds you require are minimal in which case it is worth investigating any grants available to your business from the government. These may include Austrade’s Export Market Development Grant Scheme (EMDG) or AusIndustry’s various grant programs.
You can access further information through the following links:
- EMDG - The Export Market Development Grants scheme aims to encourage small and medium sized Australian businesses to develop export markets. EMDG reimburses up to 50 per cent of expenses incurred on eligible export promotional activities, less the first $15,000.
- AusIndustry - provides incentives for Australian businesses to foster investment and become more innovative and internationally competitive. Products cover a range of industry sectors and business needs, delivered via grants, tax concessions, duty concessions and access to venture capital.
- Australian Customs Service - Through the Duty Drawback scheme exporters are able to claim a refund of Customs Duty paid on imported goods which are subsequently exported. The refund can only be claimed after goods are exported.
