pre export finance facility agreements

Pre export Finance

Pre-export financing usually takes place when a finance provider advances certain amount of funds to the borrower totally based on proven orders from buyers. As a trader you need to raise funding for producing and supplying the commodities.
In a number of cases the supplier has to make necessary arrangements for the importer for sending payment directly to the finance provider or lender. The lender further sends this amount to the seller after deducting charges along with interest associated with the loan which is termed as prepayment finance.

One of the crucial reasons for adopting pre export financing is that the borrower will get access to sufficient liquidity for maximising the company’s production.
Before providing finance to the exporter, finance provider will have to consider a number of factors such as production and risk of delivery of products. The repayment of the borrowed fund is contingent on the efficient production as well as sale of goods. Payment risk is one of the major issues within which the seller distributes the consignment as per the decided tenor but the importer fails to pay in full on time.
Eligibility: Pre shipment finance is available to all types of exporters
such as:

● Merchant exporters;
● Manufacturer exporters;
● Export and Trading houses:
● Manufacturers who supply goods to export houses trading houses  or merchant exporters.
How is pre-export finance used?
A pre-export finance is quite different from other finance products and services; such as corporate loans provided against the balance sheet of the borrower.
In a pre-export finance funds are usually provided directly from the finance provider to the producers; for effectively assisting with the working capital requirements of the business organizations. Using this pre-export finance supplier can purchase raw materials along with bearing processing costs, storage costs as well as transportation. Typically, a pre-export finance comes with a repayment tenor of 1 to 5 years.
pre-export finance facility agreements
Usually the pre-export finance agreement contains certain provisions which specifically focuses on the overall ability of the seller or borrower of producing a product and of generating income by trading that commodity.
The key provisions usually relate to:

● drawdown and the term
● production of commodity
● the offtake contracts of trade
● regular reporting about the production and sales of good
● insurance
● debt service which cover ratios as well as top-up clauses; and
● the collection accounts



Documentary Evidence: below are the following documents that are
required to be submitted by the direct exporter if they wish to avail pre-
shipment finance:

1.    There should be a confirmed export order/contract and/or
2.    Availability of a non-replacing letter of credit which will work in favour of the exporter; or
3.    Original cable/fax/telex message that gets exchanged between the exporter and between the buyers.


Pre export finance is considered as an established structure which is used for providing finance to producers of commodities. In pre export finance, finance provider provides funds to exporter for the producers for assisting them to cope up with their working capital requirements.