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A Guide to Starting a US Import Trade Business with Financing Options

Starting and Financing a US Import Trade Business is not an easy task. Here is a guide to get started and to have financing in place.

Export and imports are not new terms. The business of trading (importing and exporting) has been going on for 10,000+ years. Trade had made it possible for the middleman and the pioneers in the export and import business to become rich and prosperous and create the Great Houses. Even today, when a business goes global, it leads to the generation of more wealth in a short period. Furthermore, when a company enters the global industry or international trade market, it indicates the success of the business.

US Import Trade Financing Options

Financing a US Based Import Company

What are the main motives for Import Business?

Accessibility: As much as we like we cannot be self-sufficient, neither at the individual level nor a country level. With Import/Export in place, all the countries make excellent and services accessible to their citizens even when they are not able to produce or make it within the state.

Prestige: There are many things that a country can produce, but there would be a few products that the state would specialize in — for example, Scandinavian furniture, German beer, French perfume, Egyptian cotton. Being able to attain the specialty of a foreign country is a matter of reputation and prestige for many. Hence, some expensive goods and services are imported for self-esteem.

Price: Another major factor why a country would allow imports is because it makes the commodity or service more cost-effective. Many times, it is cheaper to import from another country rather than trying to produce it within the country’s boundaries. Walmart has a significant presence in China because of the billions of dollars of goods it imports from there to the US.

How to Finance an Import Company?

One of the preliminary things you need to do is get acquainted with U.S Customs and Border Protection (CBP) policies and procedures.  If you are planning to start an import/export business, then you need to fill up a CBP entry form. You may also need to obtain a license from local or state authorities to do business. The CBP website contains detailed and valuable information for new and experienced importers. Thorough knowledge of these policies and procedures would help you avoid any potential problem with the clearance of your imported goods.

Once you are sure of all legalities, start by choosing a Business name. Set up a website and blog to make yourself visible on the global market on an online platform.

Then, choose a product that you want to import and find the right market. Get into details of everything. Thorough market research is a precondition for establishing a profitable venture. You should know whom you want to cater to and whom you want to depend on for providing the commodity. You can always ask the manufacturer to improve and enhance the products as per your customer base.

Decide on the volume you want to import and at what price.  Ascertain the commission you want to earn and the amount you would be selling the product to your customers. Finalize business dealing contracts.

Now you are ready to get rolling. These are the steps you need to follow:

  1. Collect the exporter’s quotation and negotiate if required.
  2. Open a letter of credit at your bank or financial institution.
  3. Confirm that the merchandise has been shipped.
  4. Obtain documents from the exporter.
  5. Verify merchandise through customs.
  6. Collect your merchandise.

What are the Import/Export Trade Challenges You Should Prepare?

Since under Import/Export trade, you are dealing with a foreign country or multiple foreign countries. You should be prepared for various challenges as the business cycle is comparatively long and complicated. Let’s take a look at some of them:

  • Sourcing
    Life would have been so much easier and straightforward if we could bring people at their face value. Unfortunately, not all overseas companies that you want to Import from are what they seem. In an ideal situation, you could have a representative at a foreign location to supervise the sourcing of products. However, that’s not always possible. For this, you can take help from an International trade and sourcing expert.
  • Pricing
    Negotiation is not as easy as you are dealing with a different culture altogether. Many times, there would be a language barrier, as well. Also, there are many miscellaneous expenses you incur which get added to the value of the goods imported. The cost of the product you are importing may be very cheap from the country of origin. However, it may be expensive to import that to your country. Hence, this requires exhaustive planning and calculation to ensure that you can make profits.
  • Quality Control
    International trade would require you to trust the supplier to provide necessary commodities at a pre-decided quality parameter. It is one thing to explain and settle down on your expectations and the other to get the same quality from the manufacturer. Hence, proper quality control procedures need to be in place to ensure that what has been promised is what is delivered.
  • Transport
    Getting the products from the country of origin to the destination country is no easy task. Means of transportation is another critical decision we need to look into. Also, it is much better to sell to your large US-based customers FOB China, Italy, Vietnam, etc. as they have expertise in moving goods in the international supply chain.
  • Customs
    Not being well aware of the customs policies and fees may result in deep losses and unnecessary hurdles. Without proper guidance, it can be a very time consuming and expensive affair to get your products cleared from the customs.
  • Financial hiccups
    One of the most significant challenges is to get trade finance in the first place. Economic conditions are becoming highly uncertain, and it is becoming difficult to get bank loans. Also taking a loan from a bank is a long and complicated process. Whereas for a smooth flow of business, it is imperative to have ready cash as and when required.
  • Currency Instability
    Import and Export companies make and receive overseas payment, and the exchange rate keeps changing. When you are dealing with millions, this instability can significantly impact your financial planning. An unexpected change in the exchange rate can leave you in a desperate situation.  Also, the procedure of money transfer can be slow and costly. All this will result in your being unable to pay your suppliers and meeting your expenses.
  • Assistance is Available
    Though not all, you can overcome some significant potential problems by taking help from a great financial institution. Paragon Financial Group has a history of helping importers and distributors with trade funding for the past 27 years. Paragon provides cash flow solutions through cash against documents funding, invoice factoring, purchase order financing, A/R management, credit protection, and account receivables programs.

Let us look at Cash Against Documents (CAD) financing choice in detail:
As the name suggests, Cash Against Documents means an importer would pay for the purchases before receiving the actual products. They make a payment on receiving documents. In ensuring complete satisfaction for both exporter and importer, a third party is involved who accepts the title documents and shipping of the exported goods and only releases them to the importer when the payment is received.

The Process of CAD transaction includes the following steps:

Exporter or seller prepares necessary shipping documents required by the country of origin (exporter) and the country of destination (importer). One of the document is an Export Collection Form. The financial institution receives this form.

Now an importer or buyer can inspect the goods without taking the title of ownership. Once the buyer is satisfied that the products meet the quality promised and quantity is as agreed, they release the payment to the financial institution. Once the financial institution receives the payment, they forward the payment to the exporter and the title of goods and paperwork to the importer.

Since both the parties (exporter and importer) benefit from this arrangement of CAD transaction, mostly the cost of a fee charged by the financial institution is split between both parties. International trade is a complex transaction. Hence, the small fee charged by the financial institution to safeguard both parties is well worth the expense.

In comparison to the banks, more working capital is available from a private company like Paragon Financial. Paragon is transaction-driven compared to the bank’s focus on your balance sheet. Furthermore, many banks do not possess the experience and knowledge required to handle this type of international transaction. Paragon deals with import financing transactions daily and is well versed in the paperwork involved.

Another financial solution Paragon Financial provides Non-Recourse Invoice factoring. Here is what we do:

  1. You, as an importer or distributor, provide goods and services to your customers, followed by invoicing your clients.
  2. You send a copy of the invoice to the factor
  3. The factor releases immediate funds to you of up to 90% of the invoice total.
  4. Your clients make payments directly to Paragon. After paying the total amount, Paragon gives you the remaining balance after deducting a small fee.

Why as an importer would you like to get immediate cash at the cost of a minor fee?

Having access to immediate cash will help you meet payroll needs, pay your suppliers, and take advantage of early payment discounts and concentrate on growing your business and clients. On the other hand, if you wait for the payment as per the traditional way, then you limit yourself to your normal cycle of a business. As a result, you are unable to grow your business and concentrate on new clients.

Benefits you enjoy on paying a minor fee to a factor for factoring your invoices:

  • Invoice factoring allows you to get immediate cash without taking any loan.
  • Since you are not taking any loan, you do not incur any debt or liability.
  • Loan free cash lets you be in full control of your business.
  • You can take advantage of the factoring’s experience in the business. If you are planning on doing business with a new client, then the factor will give you detailed information about the credit history and payment pattern of the prospective client. Factoring companies act as an in-house credit department and saves you from entering a bad deal.
  • Factors are very organized in their business. 24/7, you have access to your online reports. Some factors, like Paragon, provides real-time reporting. You can know who is paying on time and you have pending invoices for a long time. They are skillful in making soft collection calls to your customers or applying pressure whenever required. However, every action we take comes only after consulting with you first.
  • Unfortunately, there are factoring companies in the market which require you to factor all your invoices. Once you decide to factor your invoices, you need to stick in such an arrangement. However, Paragon gives you flexibility. We completely respect your right to pick and choose the accounts you want to factor. There may be several reasons; you may not wish to factor specific invoices.

What import businesses have Factors helped in the past?

For years, factors have funded every product classification you can buy at Walmart. Here is just a small sample of the following types of US food imports:

  • Meats and meat products
  • Fish and shellfish
  • Dairy products
  • Nuts and nut production
  • Coffee, tea, and spices
  • Grains, grain products, and bakery foods
  • Vegetable oils, olive oil, and oilseeds
  • Cocoa products and chocolate
  • Sauces, essence oils, and other edibles
  • Wines, Spirits & Liquors

We specialize in handling high volume purchase orders and providing speedy services. Invoice factoring also opens another area of financial assistance to you, and that is Vendor Guarantee.

Vendor Guarantee

Many times, your supplier or seller requires payment in advance or a guarantee that they will receive the payment. This could be due to multiple reasons like you are new in the business, no strong credit history, etc. An invoice factoring company can provide this guarantee on your behalf to the vendor.

The pre-requisite is to factor your invoices. Remember, you can choose to avail of invoice factoring services without the Vendor Guarantee option. However, you cannot avail Vendor Guarantee without factoring your invoices. Talk to your supplier about this arrangement. Many would happily agree to this arrangement as it assures them of receiving payment. The factoring company remits the funds to the supplier once you factor your invoices. Any remaining funds after paying off the supplier goes to your company.

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