Sale and leaseback of equipment is a financial option available to businesses that is something…
Understanding Import Finance
Arranging Import Finance
Foreign Exchange Risk Cover – Sleep at night!
When arranging Import Finance, if the payment is to be made in a foreign currency, then the Lender will also usually require Foreign Exchange Cover to be taken out.
Foreign Exchange Cover is like an insurance policy! It protects you against any adverse move either the A$, or the currency being used to pay for the equipment.
Whilst there is a cost involved for Foreign Exchange Cover it provides peace of mind. It ensures you any savings made by importing the equipment are not obliterated (or worse) by adverse currency movements!
Formal Facility Approval
The next step in the process is formal approval of Import Finance facility.
At this point it is important to understand all the terms of approval and the conditions that need to be met so that the Letter of Credit can issue.
Payment against the Letter of Credit
Whilst it is possible to make payment for the goods by Telegraphic Transfer, this involves a fair degree of risk. For this reason, a far better option is payment against documentation – that is; a Letter of Credit.
The safety in this approach is that payment is not made by the Bank until the shipping documents have been received and are deemed to be in order.
If discrepancies are identified, payment will be withheld until they are rectified.
Commissioning & Final Payment
When the goods have been received, installed and commissioned, then a Commissioning Certificate needs to be provided to the supplier.
The supplier will present it to the Bank and request payment of the balance owing.
Conversion of the Letter of Credit to a Loan Facility
Once the final payment has been made, the Letter of Credit can be converted to a Loan Facility.
For example, it may be a Lease over 5 years with monthly payments of $x and a balloon or residual at expiry.
Before this can occur however the Finance Provider needs to inspect the goods before payment can be made.
Involve your Accountant
As structuring of any Import Finance facility is likely to have tax and GST implications, I strongly encourage my clients to always get input from their accountant before setting up Trade Finance.
Incorrect structures can be difficult to unwind and expensive!
How we can help with Import Finance
Import Finance requires specialist input as it can be a minefield. It can involve significant costs, and extensive delays, if things are not done correctly. A great idea or opportunity can quickly become your worst nightmare!
As an Equipment Finance specialist, I enjoy helping my clients navigate the Import Finance maze!
I work closely with the Trade Specialists within the major Banks (and other providers) to help my clients get the equipment they need to grow their business.
If you are thinking about importing equipment which you want to finance, don’t hesitate to give me a call!
Sharon Piening
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