What is trade finance?
The term ‘trade finance’ refers to several short-term financial services aimed at businesses who trade domestically, internationally or both. Each service that falls under the umbrella of trade finance facilitates a transaction between your business and a purchaser.
It does this by allowing your business to order high levels of stock that it may not be able to afford before payment is made. This is arranged with letters of credit, bank guarantees and more.
Trade finance is most often used for international trade but can be used domestically. Either way, it provides all parties with guarantees – the purchaser knows their goods are on the way; the seller knows they’ll receive payment.
How trade finance works
When a business receives a confirmed order over and beyond what they already stock, they will look to honour that order by buying in bulk from a wholesaler. But if the order is worth more than the seller can afford, they’ll need to access those products another way – usually via trade loans.
At its most simple level, trade finance products are business loans which allow your company to honour large orders without having to pay a supplier up front. Instead, your supplier will invoice your trade finance lender, allowing the sale to go through without you fronting the cost of the wholesale products.
At the same time, your trade finance lender will take payment from your end buyer. When the purchase is completed, your lender will take their fees out of the payment and you’ll receive the rest.
What are the benefits of trade finance?
The biggest benefit of trade finance is growth. If your business is not yet ready to manage big orders due to limited cash flow, you can use the buying power of trade finance lenders to enable the transaction. This allows your business to afford higher quantities of wholesale products and make more sales.
Your business may only need a trade loan once or twice, or it may become a part of your general working policy. Either way, it’s an incredible method for growth, allowing you access to big markets regardless of your financial capabilities.
Other benefits include the speeding up of transactions, greater transparency, and more security for all involved.
Is your business eligible for trade finance?
Most mainstream trade finance lenders are available for businesses working with mass amounts of capital – usually a turnover more than £1million per year. However, since international sales have seen an increase, even between small businesses, there are now plenty of lenders willing to supply trade loans on a smaller scale.
To be eligible for trade credit, you’ll need to have received a purchase order that needs funding. The good news is that trade finance lenders aren’t overly concerned with your finances. Instead, they focus on the order in question and the other parties involved. They’ll analyse the risk based on the quantity, end-buyer and suppliers involved in the transaction.
Why consider Aurora Capital for trade finance?
As mentioned, most trade finance is catered towards business with a yearly turnover in the millions. Finding the lenders who are willing to trade finance smaller business can be difficult. What’s more, understanding the ins-and-outs of trade finance can be difficult too.
Our expert team can help those who need trade finance with the whole process – finding the best interest rates and advising on best practice. With access to 15+ trade finance companies, we can quickly access competitive deals and help you finance transactions that you may previously have thought impossible. We’re also able to offer other forms of lending such as invoice financing and will direct you to the service that will benefit you most.
One of our key concerns is helping small UK businesses raise the necessary capital to fund future plans, always with the aim of helping move your business forward. View our TrustSpot testimonials for more information on businesses we’ve helped in the past.
Why not get in touch by filling the form at the bottom of this page? Or you can speak to our team by calling on 01371 870 815 or emailing firstname.lastname@example.org.