What is Trade finance and how does it work?
The definition of Trade Finance can be simply stated as a funder/lender financing a transaction where the inherent collateral are the goods being purchased or sold. Trade Finance allows businesses to grow and sell more by helping to finance Imports and Exports.
Trade Finance and Trade Finance Services are often made available by lenders as a separate facility that sits alongside the businesses other banking facilities. There are usually dedicated “specialist’ Trade Finance lenders. Most traditional banks often provide trade finance, but they are usually very demanding on requiring collateral and are often very “conservative” on what and how they lend – not untypical for banks!
Growth-Finance helps you to obtain an appropriate Trade Finance and Trade Finance Services facilities on the best terms and conditions possible. We are experts on Trade Finance and Trade Finance Services.
Matters to Consider:
- The length of the relationship with the overseas supplier. This is critical. Many Trade Financiers will not fund transactions where the Buyer and Supplier have no previous trading relationship because this makes the transactions much riskier. There needs to be a track record of transactions showing the goods work and are fit for purpose. Many fraudulent transactions take place when there is no previous trading history.
- Whether you are “buying for stock” to put the goods in your warehouse or whether you have an end customer Purchase Order. If you have presold the goods to an end buyer, then what is the credit standing of this end buyer. The trade financier will want to know this. Often the Trade Finance lender may require a payment obligation from the end buyer and arrange credit insurance in case they default.
- The type of goods. Perishable? FMCG, Commodities, fashionable? These are important issues for the Trade Finance lender.
- Manufacturing and Shipping times + the credit you need to give to the end buyer. What is the overall period of funding required? Could be up to six months in same cases. How much margin do you have – funding lengthy periods can be expensive.
Repayment process: The business repays the Trade Finance, after the product is sold and payment is received from the end buyers.
Security: Trade finance can be obtained by the products being traded or other financial assets, sustaining some measure of security for the lender.
Connecting with Growth finance:
At Growth-Finance we can advise you and arrange Trade Finance and Trade Finance Services. Some other services we provide: