How Does Trade Finance Work?
At its most basic, trade finance can be a relatively ‘traditional’ loan, allowing a business to buy products or materials that they will later sell for a profit. These loans are often used to help relieve cash flow pressure and manage working capital more effectively. Trade finance can include financing mechanisms like invoice finance or stock finance. Your company can use trade finance to buy commodities, raw materials, stock or other products they need to carry out their business.
Trade finance can be much broader, however. When you consider that any kind of trade requires that both goods and money change hands – often on a global scale – complicated questions start to arise, especially when parties haven’t worked together before. For example, what if an importer pays an exporter, but the exporter never sends the goods? What if the exporter sends goods to an importer in good faith and the importer doesn’t pay?
In any trading deal, both parties want to protect themselves against parties they are trading with not paying or supplying the promised goods. Protection against damages, poor quality, late payments and theft is also critical. To break what would otherwise be an impasse, lenders offer trade finance – this is often possible through various financial arrangements.
Banks can offer letters of credit, for example. In these cases, the importer’s bank provides a guarantee to pay for the goods, usually when the bill of lading is issued. The credit letter is typically issued directly to the exporter’s bank. When the carrier confirms that the goods have arrived in the country they are being imported to, the importer usually has the option to have the goods inspected to ensure they are of the quality, quantity and condition that was stipulated in negotiations. If this condition is met, the importer’s bank will release the payment for the goods. In return, the exporter’s bank will allow the goods to be released into the importer’s care by the carrier.
Documentary credit is another option. Documentary credit is similar to a credit letter, but in this case, a lender will release payment when specific documents are submitted. These can be documents relating to shipping, insurance, purchase orders and so on. The deal and assurance needed by both the importer and exporter will influence which documents need to be submitted to unlock capital. The stringent rules and regulations surrounding documentary credit and how documentation will need to be presented protects both parties because there is a rigorous process that will need to be met.SPEAK TO A BROKER
Why Enness for Trade Finance?
Trade finance is complex to organise and negotiate, and time is often of the essence as you look to get the ball rolling on imports and exports. Either you will want to unlock capital to enter into deals, you will want to mitigate risk if you are working with a new party, or you need to ensure you have proof of the quality of the goods you are buying. Any delay could have major financial repercussions for your supply chain and business, and you are unlikely to have significant time to chat to lenders and shop the market for the best deals.
Enness may be able to help you source trade finance, when:
- You need access to significant trade finance
- You have a complex deal, and mainstream lenders can’t or won’t lend
- You need to enter into an agreement quickly and need to source and negotiate trade finance as soon as possible
Many major banks operate in the space, but not all will support very large deals. Lenders may also have criteria you need to meet: you might need to a corporate relationship with the bank to use their services.
Enness specialises in brokering high-value trade finance, a specialist and niche part of the market. There is no maximum trade finance Enness brokers – the team will be able to help you unlock multiple seven-figure finance. At the bottom end of the scale, however, you will need to be in the market to secure trade finance for an amount of several hundred thousand pounds to work with Enness.
A trade finance deal always starts with Enness looking to understand your company’s needs and the type of deal you are undertaking. You will have lots of different options for trade finance, and which is best for you will depend on which kind of deal you are entering into. If you have dealt with the party you are trading with before, what your business has available to use as security and how much you want to borrow will influence which lenders Enness approaches.
Enness has access to over 500 lenders around the world and as a result, your broker will have access to lenders that will offer the best rates and terms available on the market. Enness can deliver offers in as little as 24 hours if required, and your broker will be able to source a deal that gets you capital in the minimum timeframe – often in as little as one or two weeks.
No matter how complicated your transaction or how much you want to borrow, Enness will be able to help you secure competitive and fast trade finance.
Contact Enness to have a no-obligation chat about your needs. Enness will talk you through how a broker can help you structure and streamline trade finance.Arrange A Time To Chat