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Import and Export loans are loans
intended to extend credit to importers and exporters
to help in financing the production and
trade of goods, processing of documents, and other
transactions before import goods and export goods are
shipped inside and outside the country.
Import and export loans are short term in nature, have
higher risk among other loans since the relationship
between the borrower and the lender are miles away most
of the time. There is a high risk that the goods will
not be paid; even if there are regular occurrences of
such import export transactions. As many things can
happen, there can be a default in payment due to
commercial reasons. There may also be instance
when a buyer suddenly becomes insolvent,
or has cash-flow problems. Also political risk may arise
while the goods are being shipped.
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| Import and Export loans also involves
the service of another party, the foreign bank. The
collateral used in import and export loans are the
goods
itself, or the proof of transactions, since it takes a
long while before they are shipped to the other country
and therefore will form part of the borrower’s
inventory. However, limited sources of import and export
loan are available, not all banks offers import and
export loans.
This may be due to what has been said
earlier, due to high risk in availing of the loan.
Import and export loans are granted to the borrower by
using letter of credit on the condition that the
borrower will present a letter of credit opened by a
foreign bank. The letter of credit should not be
expired. It must also have the indication that the
foreign bank guarantees the payment of the goods.
The payment by the foreign bank will be made once the
import or export goods are actually loaded and shipped.
The foreign bank normally makes sure that the goods will
be delivered otherwise the letter of credit will not be
paid. After confirmation of the borrower’s ability to
deliver the goods, and after the goods have been
delivered, only then the letter of credit will be paid.
The foreign bank will negotiate the letter of credit
either by buying the foreign exchange or selling it to
other banks.
Import and export loans greatly helps the economy not
only by the interest income it adds to the national
income, but also to the economy as a whole as well. In
export, when there are more productions and good
delivered to other countries, our products then are
being well known and may continue to give us a good
image, income and increase in wealth. Export loans then
also helps the country to be in good competition with
other countries. While import loans also add production,
business and increase job opportunities for people.
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