Buyer's credit

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Buyer's credit is a loan from a foreign bank to an importer to pay for goods you are importing. The overseas bank funds the supplier (exporter) or pays on your behalf, and you repay the loan to the lender through your bank. A local bank or a buyer’s credit consultant usually charges an arrangement fee for arranging this finance.

Why use it? It can give you cheaper funding compared with domestic loans because the rate is linked to LIBOR and other foreign benchmarks.

Tenor and limits (India): For trade-related imports, buyer’s credit is typically available for up to 1 year; for capital goods, up to 3 years. The maximum per transaction is generally around US$20 million, and no rollover beyond the agreed term is allowed.

Costs: The total annual cost (all-in-cost) is linked to LIBOR plus a margin that depends on the tenor and regulatory guidelines. This all-in-cost covers interest and various fees such as arranger, upfront, processing, and legal expenses.

Currency and payments: The funding currency is chosen by you, depending on availability of LIBOR-linked rates. You can use buyer’s credit for different payment methods, including open account, collections, or letters of credit (LCs). There is currency risk because payments are tied to foreign rates.

Regulatory framework: Indian regulators require that such credits follow set rules and reporting. Each credit gets a unique identification number, and banks must report monthly approvals. Proposals for short-term credits are reviewed under formal RBI guidelines, with per-transaction limits and cost ceilings in place.