Corporate and bank loans as forms of lending to foreign trade

A company (commercial) loan is a credit relationship, the subjects of which are firms. In this case, payment is made before or after receipt of documents of title. In the first case, the lender is an importer who issues an advance (100% prepayment) to the exporter, but does not yet have documents of title and other documents. In the second case, the lender is the exporter, who provides the importer with a loan in the form of a deferral of payment for the delivered goods.

A fixed (commercial) loan is usually issued in a bill or provided on an open account.

Depending on the lender, the importer’s bill credit and the exporter’s bill credit are distinguished.

The exporter’s billing loan provides for a waste on the importer, who, having received commercial documents, accepts it. The importer’s bill of credit provides for the issuance of a solo bill, the debtor of which is the exporter.

When credit on an open account, firms open accounts in their books to each other, which take into account mutual debts (netting occurs). After shipment of goods, the exporter makes a record in the books of the amount due to the debit of the open account, and the importer makes a similar entry on credit to the open exporter of the account. As a rule, a loan from an open account provides for commercial lending to the importer and in this case is disadvantageous to the exporter, since it is associated with an increased risk. Therefore, a loan from an open account is applied between long-term cooperating firms, branches of large companies engaged in exchange transactions, acting simultaneously in the form of sellers and buyers.

The advantages of a company (commercial) loan are:

independence from state regulation; relative non-interference of state bodies in commercial transactions; great opportunities for reconciling the cost of credit directly between counterparties; non-inclusion of the full term of use, which actually extends it compared to a bank loan.

Deficiencies in a company (commercial) loan:

limited terms and sizes of lending by funds and the state of finance of the supplier company; the need for refinancing in the bank; customer connection with a particular supplier; increase in the price of goods compared to the price of a similar product for cash.

Bank lending to exports and imports is in the form of loans secured by goods, goods documents, bills or without formal security.

Bank credit is provided by banks and other financial institutions. Distinguish between export and financial bank loans. An export loan is a loan from the bank of the country of the importer (or directly the importer) by the bank of the country of the exporter for the sale of a credit line. These loans are targeted, i.e. the borrower is required to use the loan exclusively for the procurement of goods in the country of the creditor. A financial loan enables the borrower to use the loan for various purposes, which reinforces the advantage of this type of loan. So, a financial loan can be used to pay off external debt, support the exchange rate, replenish accounts in foreign currency and other purposes.

Large banks practice the provision of an acceptance loan, the essence of which is the acceptance of bank spending put by the exporter on the importer by prior agreement of the latter.

The expansion of foreign trade, the problem of mobilizing large amounts for long periods of time led to the development of medium – and long-term international export credit. One of the forms of lending to exports by banks is a loan to the buyer. The peculiarity of such a loan is that the exporter’s bank does not lend to its client, but to a foreign buyer with the assignment of debt to the bank serving the importer or directly the importer himself. At the same time, the possibility of overstatement of the loan price is excluded, since the exporter is not involved in lending to the transaction. Thus, banks act as co-organizers of customer entrepreneurship, participating in negotiations on commercial and industrial cooperation, being centers of economic information and freeing exporters, thus, from various kinds of financial and commercial risks.

The benefits of bank loans:

make it possible for the recipient to use funds for the purchase of goods more freely; exempt from the need to apply for a loan to suppliers; make it possible to make settlements with suppliers for goods in cash from a bank loan; by attracting public funds and applying guarantees, commercial banks can provide export loans for 10-15 years at rates below market.

Shortcomings of bank loans:

banks, as a rule, limit the use of credit to the borders of their country; often a condition is placed on the use of credit for strictly defined purposes, which gives bank loans the properties of branded.