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The advance is provided to purchase raw materials, process, manufacture, pack, market and transport the required goods and services.At times, the packing credit is also used for financing the working capital and meet the requirements of wages, travel expenses, utility payments, etc for companies listed as exporters.Packing credit or pre-shipment finance is very important to small and medium enterprises for their financing needs.The international sales’ cycle is comparatively longer than that of domestic sales, which makes packing credit a very convenient and handy line of credit for the exporters.Money from the new financing is generally used to "take out" (i.e.to pay back) the bridge loan, as well as other capitalization needs.So instead of making short-term, self-liquidating business lines of credit, bankers opted for making real-estate loans.
In such scenarios, the facility of export packing credit supports the exporter’s supply chain and provides them funds to bridge the gap till the final payment.
Packing credit is basically a loan provided to exporters or sellers to finance the goods’ procurement before shipment.
The bank will make the funds available to a letter of credit issued favoring the seller and a confirmed order for selling the goods or services.
The goods move quickly from the producers through the distributors to the retail outlet and then are purchased by the ultimate cash-paying consumer.
Banks increasingly had the incentive to make long-term amortizing loans secured by long-term assets because the threat of bank runs has been taken away by increases in FDIC deposit insurance.