How can it help me?
A secured loan can help you finance production for a specific export order or the overall growth of your export business.
What is it?
A secured loan is money you borrow from a bank or a financial institution, using your assets as security, and repay with interest over a period of time. The amount you can borrow and the term of your loan depend partly on the security you can provide to your bank. In export finance, a short-term secured loan is sometimes called a trade advance or export advance.
How does it work?
When you apply to a bank for a business loan you’re usually required to outline your business operations and explain how you intend to use the loan funds. You may also need to list the assets over which you can provide security to the bank for repayment of your debt.
Common forms of security include cash, fixed assets like commercial property and equipment, and accounts receivable for sales within Australia. As an exporter, you may also be able to include your export accounts receivable as security, but this depends on your bank’s assessment of the non-payment risk of your overseas transactions. Your bank may be more willing to accept your export accounts receivable as security if the receivables are protected by export credit insurance.
You might also be able to draw on positive aspects of your business when securing a loan, such as a steady long-term relationship with your bank, a successful trading history and a promising pipeline of future business.
The bank may ask you to provide additional security in the form of personal assets, such as a mortgage of your home, or to provide a personal guarantee for the amount of the loan.
The interest rate on your loan may be fixed, variable or a combination. The term of the loan can vary widely. If you need funds for a particular purpose, you might receive a short-term advance of funds with a loan term of just 30 days. Medium- to long-term loans may have terms from around 12 months up to around 25 or 30 years, depending on the circumstances and the security you can provide.
Your regular repayment obligations are set out in the loan conditions. If your loan has no regular fixed repayments over a defined period, it’s usually called an overdraft or line of credit.
Many banks will consider offering loans in foreign currencies as well as Australian dollars (see foreign currency loan).
What are the pros and cons?
| Pros |
Cons |
| Can help fund a particular export contract or the overall growth of your export business |
If your export business is growing rapidly, you may lack the tangible assets your bank requires you to provide as security for a secured loan |
| Many loans provide a range of repayment options, and sometimes a redraw facility, to help you manage your cash flow |
It may be particularly difficult to obtain a secured loan for an offshore investment, as Australian banks are sometimes reluctant to accept offshore assets as security |
| A fixed interest rate loan tailored to suit your circumstances may protect you from adverse interest rate movements |
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What costs are involved?
As well as paying fixed- or variable-rate interest on a secured loan, you may need to pay bank fees and charges such as a one-off loan establishment fee and a periodic loan service fee, and other expenses.
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