Borrowing for business : 3. Export funding

The Banks and Financial institutions extend various facilities to the exporters. The intention is to promote and facilitate exporters to do more to get more foreign exchange into India.

The facilities extended can be categorized into Fund based and Non-fund based facilities.

Fund based is more of extending funds to the exporters and non-fund based (as you guessed) is more of extending non-fund base facilities like guarantee or letter of credit etc.,

Fund based

• Pre-shipment facility
• Packing credit
• Basically to fund the procurement to shipment to the importer expenses against an confirmed order / LC.
• For purchase of raw materials, processing, packing, transportation and warehousing of goods meant for export, It has two essential features, viz:
• existence of an export order and / or letter of credit;
• liquidation of the packing credit by submission of export documents within a stipulated period
• It is part of your working capital limits
• Duration depends on the business cycle
• Post-shipment facility
• Discounting export bills
• Part of the sanctioned credit limit
• Bank will pay the exporter the discounted value of the invoice, immediately up on shipment.
• Bank offers this service in rupee as well as foreign currency.
• Advance against export bills sent on collection
• Mostly used when the bills drawn under Letter of Credit has some discrepancies.
• When the bill discounting limit of the exporter is exhausted and bank is not willing to sanction additional limit.
• Bank may finance a part of the total bill amount as advance. A margin of 10%-25% exercised by bank. 
• When the export bill is realized, the advance will be liquidated and the bank will pay the balance to the exporter.
• Rate of interest is same as applicable to post-shipment finance.
• Advance against duty drawback claims
• Duty Drawback Scheme aims to provide the refund/ re-coupment of custom and excise duties paid on inputs or raw materials and service tax paid on the input services used in the manufacture of export goods.
• The bank lends finance against such duty drawback receivable from customs after the exporter submits all the essential export documents with their bank to confirm eligibility.
• The bank will make sure that the drawback amount will be paid directly to them by the customs department, before they extend the advance to the exporter.
• This advance is granted to the exporter, for upto 90 days, by the bank which extends other export finances to the exporter. Other banks shall not extend this benefit.

Non-fund based

• Export Letter of Credit confirmation
• Advising a Letter of Credit is just a verification of the authenticity of the message received. There is no risk to the bank here.
• Confirming export Letter of Credit means that the bank gives the additional guarantee for the money due under the Letter of Credit
• Back to back Letter of credit
• Normally done for intermediaries - those who gets the LC and Order and works with actual supplier and gives the supplier his Letter of Credit.
• Guarantees 
• There are various guarantees are provided to the exporters in the course of the business.

The above are not exhaustive list. This is just an awareness post and you can work with your financial advisors / consultants / banking partners to know more about their offerings.

Remember, when you are importing or exporting, you are exposed to not only the party level risk, but also international / country level risk, Currency risk etc., So, play safe. Google knowledge will not suffice.

All the best.