How to Start an Import Export Business
Importing and exporting is big business. Last year, imports of goods and services brought in $1.2 trillion. And exports totaled $2.3 trillion. Consumer goods imports reached $602.2 billion — the highest on record in 2017 — and the U.S. made record numbers of exports to 29 countries, led by Mexico ($243.0 billion), China ($130.4 billion) and the U.K. ($56.3 billion).
These might be massive numbers, but the imports exports industry is not just for large companies. In fact, small businesses make up 97 percent of U.S. exporters, according to the U.S. Small Business Administration. And that figure doesn’t include only tangible products. Since 1980, service exports — such as entertainment, technical and healthcare services — have grown exponentially more goods exports.
Why export? Because the rest of the world is where 96 percent of consumers are located. And there’s huge potential: Fewer than 2 percent of U.S. businesses are exporting.
What is an import/export business?
Simply put, importing involves receiving goods from a foreign country for sale domestically. Exporting involves sending goods or services overseas for sale abroad. Here are the types of businesses that make up the importing and exporting industry:
- Export management company. This type of company handles all aspects of exporting to foreign markets on behalf of businesses, including invoicing, advertising and shipping.
- Export trading company. This type of business determines what’s in demand in overseas markets and finds U.S. companies to export those items.
- Import/export merchants. These are DIY, free agents — they don’t specialize in clients or products.
Benefits of importing/exporting
Importing allows small businesses to offer new products that your customers haven’t seen before — and that might give you an edge over your competition. One major reason for importing is to get goods for less from places where they are produced at a lower cost. You also might be able to get a higher-quality product by importing.
As for exporters, consider these benefits from a 2001 SBA study:
- Companies that export expand faster and are less likely to fail than companies that don’t.
- Blue-and white-collar exporting employees enjoy higher earnings and better benefits.
Exporting can also help you increase your company’s global market share, address seasonal market changes and diversify your markets so you have more options. Exporting might also bring larger orders than your company’s domestic orders, which leads to more profits.
Funding for your imports/exports business
Many programs encourage economic growth by making it easier for small businesses to import and export. Keep reading to find out how.
Because of the logistics involved in shipping goods from overseas and waiting for domestic distributors to pay invoices, importers often have to put up large sums of money months before earning a penny from imported goods. Small business loans or other funding tools can fill in that cash flow gap.
- Factoring accounts receivable. A factoring company purchases your unpaid invoices for typically 80 percent to 90 percent of their value and generally charges a small fee.
- Inventory financing. A lender uses your existing inventory as collateral to secure a loan.
- Purchase order financing. A PO financing company pays your supplier directly to make and deliver goods to your customer. The financing company collects payment directly from the customer and sends the balance to your company after subtracting fees. It’s a pricey option.
There are several SBA funding options for small businesses looking to export their goods and services.
- The SBA’s State Trade Expansion Program (STEP) provides awards to state governments to help provide funding to small businesses interested in exporting. This includes funding owners can use to attend and exhibit at export trade shows and or go on a foreign trade mission.
- The SBA also guarantees Export Express loans, its most streamlined financing option for exporters. Lenders use their own underwriting process and paperwork to provide up to $500,000 with approval within 36 hours.
- The Export Working Capital Program is another SBA financing option; the SBA guarantees up to 90 percent of a lender’s export loan for up to $5 million.
- The SBA’s International Trade loans help small businesses enter foreign markets. Owners can use the funds for fixed asset, working capital financing and debt refinancing for up to $5 million.
Importers: How to find suppliers
If you’re an importer, you can find foreign suppliers by getting referrals, attending trade fairs and even by looking at import records, such as Bills of Lading, which serve as receipts for freight shipments. You can gain access to these through your local chamber of commerce and some might be online.
Importers should consult these guidelines from the U.S. Customs and Border Protection, which detail what types of products might require a license or permit.
Keep in mind that you don’t need to speak the native language to trade with a country. Many businesses abroad communicate in English, and when it’s not an option, the U.S. Department of Commerce’s Foreign and Commercial Service provides translators for small businesses. That said, you should make an effort to learn the culture, traditions and holidays those in your markets observe.
Exporters: Choose products and markets
When you’re investigating expanding into international markets, take the time to list all the benefits and trade-offs. Next, seek out market intelligence about categories you’re considering for export.
Another place where exporters can find market information is at the export.gov website. The market assessment tool — “Top Markets” — helps exporters identify future opportunities through reports on sectors such as automotive parts, environmental technologies, pharmaceuticals and financial technology.
The SBA suggests Canada and Mexico as starting points, for logistical reasons. You might also want to look at where your competition is exporting to or importing from, and identify the largest markets in and out of your state. The last category can shine light on competitive advantages your state might have and identify potential, long-established trade partners.
When choosing your exports you’ll want to consider your most popular products, but that’s not the only factor. Make sure you match your product or service to a global trend or need, then deliver it to the most profitable foreign markets with those needs.
One more thing, exporters: Don’t choose too many markets at first. The SBA says newcomers to exporting often expand to too many foreign markets. The organization recommends limiting it to three.
If you’re considering importing and exporting but are unclear on how it actually works, contact SBA’s Office of International Trade and your local Small Business Development Center for help getting started. You can also contact your nearest U.S. Customs and Border Protection office. In addition, U.S. Export Assistance Centers offer help to small- and mid-sized businesses.
The U.S. Customs and Border Protection website provides a trade section with updates on tariffs, rulings, legal decisions, and more information useful to importers and exporters, as well as the basics on importing and exporting. Review this complete list of government trade agencies:
For suppliers. Thomas has more than half a million supplier profiles; Wand provides a search for suppliers worldwide; and Alibaba.com and Global Sources can help U.S. importers find products to import.
U.S. Customs and Border Protection offers a guide — Importing into the United States — that contains a wealth of information on the importing process and regulations, including a list of government agencies you might need to contact about licenses or certification, depending what commodities you import.
The SBA also offers a blog, Selling Imported Goods in the U.S., which has research tools for trade barriers, trade agreements and customs brokers, plus other information.
- The Bureau of Industry and Security has an exporter portal and information on which commodities might require special licenses to export.
- The SBA Office of International Trade helps small businesses compete in global markets.
- U.S. Export Assistance Centers help small- and mid-sized businesses navigate the exporting process.
- Export.gov is a starting point for exporting, with market intelligence and business tools including webinars and information on logistics, e-commerce and legal considerations.
- Top Markets is a market assessment tool for U.S. exporters.
- You can find out here if your state offers STEP funding to encourage export development.