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By: Ronda PaynePublished On: May 8, 2018
It’s hard enough as it is to tackle starting a new business, but when it’s one that requires funding to get established, like in the case of international business management, it’s a whole different ball game. The level of uncertainty is higher, the challenges are more significant and the questions are endless.
When it comes to global business management and starting from the beginning, there are those who have done it the right way and those who have done it the wrong way. The great thing about international business in Canada is that with these pioneers leading the way, you can learn a few of the tricks of the trade without all the headaches. It may be hard to find someone to lend advice, but sometimes while exploring financing options, these business leaders will emerge.
Here is a list of five top tips for overcoming the struggles in obtaining financing in your international business management business and how there can be advisors present in the process:
1. Get a solid education. The school of hard knocks isn’t all it’s cracked up to be. Sometimes learning “the hard way” makes a lesson stick, but if you can obtain that knowledge differently, it’s going to make the journey from “business dreamer” to “entrepreneur” that much easier. There are a range of international business programs available that touch on all aspects of a business, including funding. These classes are generally taught by those who have been in the market for a while, so you’ll gain insight from those who have found their way in global business management.
Look for an international business course that not only helps explain “what is international business” but also digs deep into the real issues of running one. This includes key learnings like understanding global economies, international trade law, evaluation of markets, products and services and the important aspect of creating partnerships and alliances to benefit your business as well as obtain the capital needed to get, and keep, that business running.
Another important element in choosing an international business program is finding one that offers a co-op placement to allow for the practical, hands-on learning needed in order to go out and start your business. Here again, you’ll be learning from those already successful in the industry.
2. Look into buyer and supplier credit options. Linked to exports, these credits are specific to international trade businesses in that a financer will use a buyer’s ability to repay in order to finance an export over a mid or long-term. The funds go to the buyer to enable the purchase from the exporter for these large transactions.
In a supplier credit, the credit provider (lending institution) purchases the buyer’s debt to the exporter for the goods being purchased. The financer manages this arrangement directly with the exporter for transactions of a moderate to high value and payback is short to mid-term.
Obviously, this is the kind of financing specific to international trade-oriented financial institutions and the specialists within them.
3. Consider bartering, also known as countertrade. This is a method as old as time. Countertrade sees the importer providing goods and/or services to the exporter in exchange for the goods and/or services the exporter delivered. It sounds complex, but ultimately, it’s simply a case of bartering. Instead of being paid cash for providing something, the exporter is receiving goods and/or services in return.
This may be a very attractive option in emerging markets due to a lack of hard currency in those regions. It’s also a concept almost everyone understands to make it simple in terms of vision, but ensuring value is exchanged to the level of agreement of both parties is where things can get sticky. It’s best to have a thorough understanding of the market/region the exporter is countertrading into and that there are no language or cultural issues that may cause confusion.
4. Have the project financed. Project financing is based on the project itself in that repayment comes from the revenues created from the sale of items created by the project. This may be the case of funding for a product start up where financing is provided to establish proto-types, testing and market feasibility studies to get the product to market. Once the project is generating sales that will begin to cover the debt, repayments are arranged.
Again, as this is a specific type of financing, it takes a specific type of lender. There are a number of project financing lenders who take varying levels of interest in the project itself from hands-on to completely hands-off and being strictly a lender. It’s good to know how much involvement you want before pursuing this type of lending in order to find the right relationship and fit for going forward. Of course, those who are able to find a hands-on lender will likely benefit from the past experiences of someone who has successfully brought products and services to market in the past.
5. Find ways to minimize risk around fluctuations in foreign currencies. Being the norther neighbour of the U.S., Canadians are quite familiar with how the Canadian dollar fluctuates compared to the U.S. dollar. While this often seems like dramatic shifts from day to day, they are minor compared to what some foreign currencies experience. This can make the difference between a great sale and one that costs the exporter money.
One way to minimize risk is to have the transaction set up in Canadian currency so that it’s the buyer taking on the risk of currency fluctuations. However, not everyone is willing to do this for the same reasons you don’t want to – it’s a risk. Some are willing to take it on, while others are not. For those who aren’t, you can consider including a fixed rate of exchange in the sales contract along with the other details of the transaction, this way, regardless of what happens with currencies, what you agreed to initially is how it looks at the time of sale and ultimately payment.
There are many ways to finance your new international trade business. It takes some creative thinking and sometimes looking at financing differently, but by arming yourself with information and allies who have “been there, done that” you’ll be in a better position to create a successful business while minimizing any potential risks inherent in doing business with other countries around the world.