What is Trade Finance ?
Type : Importing or Exporting Businesses
Lending size : £500k to £20m
Term : Transactional (up to 180 days) or long term (one year) facilities
Interest rate : 3% to 10% p.a.
Repayment : Short term facilities that typically “self-liquidate” once transactions are complete
Security : Typically Debentures, Personal Guarantees, and transaction based security
A trade finance solution could be used when dealing with a new customer / new country to ensure the seller receives payment from the purchaser before an ongoing trading relationship has been established. Typically if you are selling a product for export you can obtain a letter of credit confirmed by a “good” national bank in the other country – this means that should your buyer fail to pay then the bank will.
Trade Finance can also be preferred by the purchaser, through the use of documentary letters of credit, to ensure the goods they are purchasing are correctly packed / certified, often with inspection by a third party at point of loading.
Some of the other solutions available include pre-shipment finance, working capital loans, overdrafts and receivables finance. To ensure payment is received, instruments such as bills of exchange and standby letters of credit can be requested by the seller. These can then be confirmed or even negotiated by their bank.
Some clients implement a joined up approach to their trade finance – they import product with a letter of credit (normally secured against property) which then turns into a stock loan (secured against the stock and/or property) and then if the product is sold on trade credit terms an invoice finance facility provides working capital (secured against the debtor book) back to the bank account whilst payment is outstanding.
Because of the range of products and scenarios, this is priced on a bespoke basis.
If you would like to know more about trade finance, let us know here.