Financing Options

Foreign direct investment is often financed with corporate funds however there are many options for financing when doing business internationally including alternative financing and government foreign investment incentives. Alternative financing options such as investment and commercial banks in the host country is one alternative. There are three major sources of funding available international bank loans, the Euronote market, and the international bond market. Government foreign investment incentive options are tax abatements, grants, insurance, and soft loans. Tax abatement is usually a program or offer made by a government to bring foreign investors to do business. Governments would reduce or eliminate some taxes such as sales tax. In developing countries, governments would provide tax abatement for corporations to increase foreign investment. Governments provide these tax abatements to help development in certain areas or industries. Some countries offer grants as an incentive to invest some municipal, state or federal governments give grants to reduce initial outlays on industrial buildings and equipment. Capital grants in the form of land can be obtained from municipal governments and are often provided through state development agencies (Mondaq, 1997). Medium-term loans are usually funded with certificates of deposit that compensate investors for inflation plus interest. Long-term financing is available through loans; long-term loans made to local banks by foreign banks in foreign currency, which the local bank passes on to final borrowers for shorter terms (generally one year). The final borrower assumes the foreign currency risk and pays the interest, the withholding tax and, a other fees (Ernst & Young, 2007).

Ernst & Young. (2012). Doing Business in Brazil. Retrieved March 4, 2012, from Ernst & Young: http://www.ey.com/Publication/vwLUAssets/Doing_Business_in_Brazil_2007/$FILE/Doing_Business_in_Brazil_2007.pdf
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