FINANCING AND INSURANCE (a)

Defining Your Financing Needs

The first step in accessing the financing you need is to be able to define your needs. The following are examples of the types of financing you may require, as you prepare for entering international markets.

You need financing for your company, (corporate financing), if:

a) Your domestic market business is successful and you see an opportunity to venture into the global marketplace, thus you may wish to hire the services of a consultant to develop your marketing and business plan.

b) You know that you can develop unique expertise that will enable you to gain clients internationally, thus you may require funding for both technical and market development.

The question is:

Where do you get the financing your company needs to start the development of the plans? Refer to Meeting Your Financing Needs for information on how to identify and work with sources of financing.

You need project financing if:

a) When you are setting up a plan for your export market, you identify an enthusiastic client for a major project. You have identified some potential partners and possible sources of financing for the eventual project. You evaluate your current financial situation and determine a requirement to travel and to carry out the short-term research necessary to win the project.

b) You have been at the client�s site for an extended period of time and the client has run into financial problems which may be country or client specific.

The question is:

How can you access project financing or suitable insurance so that you can receive payment for services performed? Refer to Meeting Your Financing Needs.

You need transaction financing if:

a) During a recent trade mission, you met with a company who wants to hire you to provide services under a one year contract, but you do not have financing to complete the transaction, thus you need to identify where to source help to complete the deal.

b) You have received an excellent contract for your services from a foreign client, but your domestic bank refuses to accept it as a solid receivable, thus you need to convince them or seek an alternative source of financing.

The question is:

How can you have the bank accept your receivables and provide you with the transaction financing you need to complete the contracts? Refer to Meeting Your Financing Needs

Financing and Competitiveness

Accessing competitive financing is critical to the development of your international business. Often it is the determining factor for presenting the most attractive proposal for a transaction or a project. In addition to providing competitive loan rates, financial institutions can improve your competitiveness in other ways as well, such as:

a) Commercial banks and for example, for Canadian, the Export Development Corporation (EDC) provide information on market risk, reducing time you spend on research, or efforts on attempting to market into hazardous situations.

b) Working with EDC to present to your client, can enhance your credibility and give an early indication that your proposal will include an attractive financing package.

Meeting Your Financing Needs

This section provides information on how you can look for financing to establish or expand your service business, access financing for an international services project, or access financing for a specific service export transaction.

It is useful for your financier to understand that you, as a successful service exporter, will become a long term client, able to repay loans and help the financier to meet all its goals, including in some cases, job creation or poverty alleviation. During negotiations with financial institutions, you need to explain that a competitive proposal will enable you to win a contract and that a loanto you at the lowest possible rates will be more profitable than no loan. The key is to ensure that the financial services provider feels like part of your team. This is most likely to happen when you cultivate the relationship by maintaining regular contact, not just visiting when you need a loan.

As you seek financing from external sources, estimate the cost not only in terms of interest and loss of control, but also in terms of management time required to apply for the financing and to maintain the relationship with the lender.

• Financing Your Company
• Financing Your Project
• Financing Your Transaction

Working With Financing Sources

When working with any source of financing, be sure that you understand the aims of the organization, then present your information to show how you will help the institution or individual to achieve those aims.

Working with Private Sector Financing Sources

When working with a commercial bank, demonstrate that its contribution to financing your export will be secure by giving a clear overview of:

• the project
• your need for financing
• the reliability of the client
• the capability and record of your company
• the reliability of your client
• the viability of the transaction

Working with Public Sector Financing Sources

When working with any public sector source of financing present your information to show how you will help the institution or individual achieve goals which may include:

• securing profits
• creating jobs
• increasing the competitiveness of an industrial sector
• strengthening business activity in a geographic region or a social group
• increasing the number of exporters

Working with International Development Organizations on Financing

When working with an International Financial Institution, a UN agency, CIDA or a developmental Non-Governmental Organization (NGO), be sure that you understand the aims of the organization, then show how assisting with your project will help the institution achieve its goals. These, among others, could include the following:

• enhancing social, economic and environmental conditions in the developing country
• creating jobs in the developing country
• strengthening of an industrial sector in the developing country
• increasing food self-sufficiency, quantity and quality
• improving the sustainability in the use of natural resources
• enhancing infrastructure

Planning Your Approach to Financing

Before approaching any organization for financing, whether for investment in your company or progress payment on an international sale of your services, take the time to prepare properly, even for an initial visit. This preparation should include preparing yourself, preparing your financing package and preparing your lender.

a) Preparing Yourself
Professional advice can be useful in developing a financing plan. However, you should do most of the preparation yourself for the following reasons:
• you will have to answer your financier�s questions and must understand the plan intimately to do this well
• few professionals have a broadly based experience in preparing plans for exporters of services, except possibly in the high-tech area, construction and engineering
• you will need to modify your plan depending on the organization you are approaching, in order to demonstrate how your work will assist them to meet their needs. This is easiest to do when you know every aspect of the plan in detail.

b) Preparing Your Financing Package
The first step is to meet with various lenders to understand the types of financing options. Your financing package should be prepared in such a way that it can be easily modified to address the requirements of the various lenders. Your financing plan can become a component of your overall business plan or your export plan depending on how you intend to apply the financing.

c) Preparing Your Lender
There appears to be a lack of understanding in the financing community regarding the way service firms do business in general and how they conduct international business transactions in particular.

The above situation is true when exporters are dealing with local bank branches rather than the International Banking Centres in the major cities, and with local government offices where staff may lack extensive export-oriented training, particularly for exports of services. It is in the best interests of the company seeking financing, or other assistance, to be very well informed about all programs that are available. Unfortunately, it is often the case that:

• exporters are not well enough educated about the full range of bank and government programs and therefore are not able to direct bank staff or government officials to the appropriate contact within their own organizations
• exporters are not able to describe their needs and to "sell" their capability

Companies most in need of advice from knowledgeable commercial bankers are those that tend to be dealing with staff who lack relevant experience while large, competent exporters will likely be working with the knowledgeable staff of the International Banking Centres. It is recommended that service exporters conduct thorough research on the programs and services available from their commercial bankers. This could include reviewing web sites, meeting with the staff of the International Banking Centre operated by most commercial banks in most of the major cities, and asking, for example in Canada, the Canadian Commercial Corporation and the Export Development Corporation for suitable contacts in your commercial bank, then using this information to ensure that your local branch is aware of the full range of services it should be making available to you.

Part 8 - Financing and Insurance (b) - continue

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