A loan facility extended to an importer by a bank or financial institution to finance the purchase of capital goods or services and other big-ticket items. Buyer’s credit is a very useful mode of financing in international trade, since foreign buyers seldom pay cash for large purchases, while few exporters have the capacity to extend substantial amounts of long-term credit to their buyers. A buyer’s credit facility involves a bank that can extend credit to the importer, as well as an export finance agency based in the exporter's country that guarantees the loan.
Buyer's credit helps local importers gain access to cheaper foreign funds that may be closer to LIBOR rates as against local sources of funding which are more costly.
The duration of buyer's credit may vary from country to country, as per the local regulations. For example in India, buyer's credit can be availed for one year in case the import is for tradeable goods and for three years if the import is for capital goods.
This Facility is available for development, upgrading or expansion of infrastructure facilities; financing of public or private projects such a plants and buildings; professional services such as surveyors, architecture, consultations, etc.