Trade Finance

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Trade Finance Business Funding

Do you have a wholesale business or work as a distributor or importer? You may occasionally experience periods of low cash flow but still require capital to purchase stock in order to make a profit. This payment gap needs to be filled otherwise you won’t have any inventory to sell, and this is where trade finance can be a very useful form of business funding.

Trade finance is used for financing both imports and exports, so if your business is just concerned with exports you may want to have a look at export finance as your funding option.

What Is Trade Finance?

Trade finance is designed to provide wholesalers, importers and distributors with the capital they need to pay suppliers in order to operate their business. There are a number of different trade finance solutions, but the idea is the same; to cover the pay gap that allows you to start a new sales cycle so that you can fulfil customer orders. Bridging this pay gap is the key to operating a smooth business and it’s essential that you minimise downtime.

How Does Trade Finance Work?

Unlike other forms of business loan, trade financing works once you have confirmed orders. If you have a purchase order from a customer, you can use trade financing to purchase the items listed on the purchase order in order to fulfil it. This often means that the goods can be shipped immediately and you won’t be left short waiting for the customer’s payment.

What’s The Process of Acquiring Trade Finance?

Depending on the lender and the amount you are wanting to borrow, you may have to provide detailed information on purchase orders past and current. You may be required to provide accounts for at least 6 months. In certain circumstances, you may need to provide assets as collateral against the loan.

Once you’ve provided the lender with sufficient information, they will accept your application and will start requesting purchase orders or similar documents before giving your company the money required to fulfil each order.

As with all types of business funding, there are various advantages and disadvantages to trade finance you’ll need to consider:

Advantages

  • Allows your company to grow by fulfilling larger orders than usual.
  • Easily integrates within your company’s trading cycle.
  • Allows you to pay suppliers on time to avoid any gaps in your stock.
  • Can be used to introduce newer and more expensive items into your product range.
  • Can easily be used to import overseas goods.
  • The loan is secured against the goods as collateral.

Disadvantages

  • Interest charged can be quite high due to the short-term nature, resulting in smaller profits for your company.
  • Requires a good company track record, often less accessible for new companies and start-ups that are planning to grow.
  • Payments must be made on time to avoid hefty interest.
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Trade Finance FAQ’s

Any kind of wholesaler, distributor or importer can make use of trade financing. If you require raw materials or stock to operate your business, then it might also be suitable for your needs.

In most cases, yes. Your lender will likely offer alternatives should you not be able to provide purchase orders for your loan requests. However, setting up a purchase order system should be relatively easy and the documents can be manually typed up and submitted to the lender. Once approved, you can continue with your loan as usual. Not having a purchase order system will make it more difficult for your lender to trust your loan amount and they may decline your request.

Unlike other forms of financing, trade finance is secured against the goods that you purchase. The goods bought will act as collateral, meaning you don’t need to worry about losing existing business assets. However, it’s still good to keep in mind that failed payments will reduce your credit rating and will affect future interactions with your bank. You will need to have a good financial track record to prove that trade finance will help your company grow.

Trade finance is typically used to bridge payment gaps between purchasing stock and selling items. For example, if a company requests a large order from you that you typically can’t handle due to limited stock, trade finance will allow you to fulfil that order despite it being outside of your typical order size.

Yes. Trade finance offers your company a line of credit that can easily be used to fulfil larger orders, purchase newer and improved items that benefit the customer and also buy more inventory to create larger orders.

Trade Finance For Ambitious Businesses

If you are an established trader and an ambitious business looking to fulfil bigger orders and purchase more stock – trade finance can help.

For more information on trade finance and other types of funding available for your business, give one of our friendly team a call today on 0800 047 2389 or fill out our contact form and we’ll get back to you.