In this post, let’s take a closer look at trade loans and how they may benefit your business.
What are Trade Loans Used For?
If you take out an International Trade Loan, you must produce goods or services for international trade. You cannot limit your sales to the U.S. market unless you’re being severely affected by imports. The SBA asks that you use the loan proceeds for facilities and equipment within the U.S. or its territories. You may allocate the funds toward constructing, improving, or expanding both your facilities and equipment. In addition, the proceeds may be put toward debt refinancing that isn’t structured under reasonable terms and conditions. This includes debt that’s eligible for refinancing under a Standard SBA 7(a) Loan.
International Trade Loan Terms
The International Trade Loan offers up to $5 million in funding. The SBA can guarantee up to 90% up to a maximum of $4.5 million. If you’re using your loan for working capital, the guarantee caps out at $4 million. SBA-approved lenders who offer trade loans may charge an interest rate of up to 2.25% and 2.75% points above the prime rate, depending on the loan’s maturity. Speaking of maturity, it’s up to 10 years for equipment loans unless the useful life of the equipment exceeds 10 years. Terms for real estate go up to 25 years and max out at 10 years for working capital. When it comes to collateral, the SBA accepts collateral located in the U.S. It also requires a first-lien on property or equipment financing. Depending on your situation, you may have to back your loan with additional collateral.
Who Is Eligible for an International Trade Loan?
If you’d like to take out an international trade loan, you must meet the eligibility requirements for a Standard SBA 7(a) Loan. Also, you need to prove that the loan will help you expand or develop an export market. If your business has been significantly affected by imports, you’re required to show that the loan will help you regain your competitive spot.
Financing Alternatives to the International Trade Loan
If you don’t believe the International Trade Loan is right for you, explore these alternatives.
1. SBA Loans
In addition to the standard International Trade Loan, the SBA offers two other international trade loan options that can help your business.Expert Working Capital Loans come with loan amounts of up to $5 million and are also backed by an SBA guarantee of 90%. The caveat with this option, however, is that they are less flexible than International Trade Loans because they have a maximum repayment term of three years. This three year repayment term can be problematic if you’re unsure of whether you’ll have the funds in such a short time frame. If you’re in need of fast working capital financing, you may want to consider Export Express Loans. You can get approved in as little as 24 hours and borrow a maximum of $500,000. Export Express Loans feature the same repayment terms as International Trade Loans. The downfall with Export Express Loans is that they come with a 75% instead of 90% guarantee.
2. Traditional Business Loans
In the event you don’t qualify for these SBA loans, you can opt for a traditional business loan from a bank, credit union, or online lender. Since rates and terms vary by business lender, you’ll want to shop around to find the ideal financing option for your business's particular situation.
3. Business Lines of Credit
A business line of credit is another form of financing that may make sense if you’re unsure of how much money you need to borrow. You’ll be able to withdraw as much or as little as you’d like up to your set credit limit and only pay interest on the money you take out.
4. Merchants Cash Advances
When you get a merchant cash advance, you sell a portion of your future receivables in exchange for a cash payment for the receivables at a discounted rate. Business cash advances often offer immediate approvals and fast funding, sometimes the same day you get approved.
Conclusion: If You Participate in International Trade, an International Trade Loan May Be Useful
If you're involved in international trade, an International Trade Loan can help you have enough cash flow to operate. You can get up to $5 million in funding for fixed assets and working capital, as long as you start, continue, or expand your international export efforts. The loan is a particularly good option if you’ve been affected by import competition. It can provide you with the funds you need to make certain changes and investments to become competitive.