What are first and second dollars?
Exporters, like any business, have different sources of finance at different costs. The cheapest source of finance can be called the first dollars. These first dollars usually come from their local bank and are low cost because the bank takes collateral and sets a prudent limit on risk.
But successful exporters can quickly find that the supply of first dollars from the local bank gets used up. Then the exporter needs second dollars. This is finance without collateral or guarantees. It is finance above the amount that the bank provides.
The cheapest source of second dollars is export finance, and this is what PrimaDollar provides.
Why are second dollars more expensive?
First dollars are limited because there is only so much collateral available, and the bank will only give so much money. These dollars are the lowest risk because if the exporter cannot pay back the money he borrowed, the bank can take the collateral and get its money back.
With all the collateral pledged to the bank, second dollars are supported only by fresh air and the promise to repay. This higher risk means that the rate charged is also higher.
Why do exporters need second dollars?
The most successful exporters are growing quickly and need second dollars.
There are two reasons:
- Successful exporters usually sell to their buyers with credit. The more they sell, the more finance they need. That is because the exporter has all the costs in making the goods, but only gets paid by the buyer 90 or 120 days after they are shipped. Perhaps a few buyers can be supported like this from the first dollars – but winning a lot of business can mean that the cash flow delay on every shipment becomes crippling and help is needed.
- Banks who are the typical source of first dollars based today’s credit on yesterday’s numbers. A growing business can easily find that the available credit limits do not keep up with volumes.
Needing second dollars is usually a sign of success and not failure.
What are the sources of second dollars?
Exporters should use all the first dollars that they can, but usually this is not enough for a successful exporter. The more exports he makes, the more cash he needs.
Exporters can find second dollars without collateral from non-bank financial institutions, leasing companies, loan companies, alternative lenders, and maybe unofficial sources.
But the lowest cost of second dollars will be export finance.
Why is exporter finance the lowest cost “second dollar”?
Export finance provides cash to the exporter based upon the credit quality of the buyer and not based upon the credit quality of the exporter.
This means that:
– no collateral is required from the exporter
– large amounts of second dollars can be provided if the buyer is a good credit
– costs can be very low, sometimes even cheaper than first dollars
Export finance from PrimaDollar is simple and low cost
PrimaDollar offers a low cost export finance product.
PrimaDolalr pays exporters in cash at shipment and allows the buyer to pay later. Usually, the pricing is the lowest in the market; our charge is competitive with banksincluding all fees and charges.
This is likely to be the lowest-cost source of second dollars for exporters available anywhere.
How can I find out more?
With a global network and global coverage, talk to us.