The Trade Finance Loan AKA “The IOU”

Trade finance is a type of working capital finance where the lender pays for your inventory or stock directly to your supplier.
The Trade Finance Loan AKA “The IOU”

HOW DOES TRADE FINANCE WORK?

Trade finance is a type of working capital finance where the lender pays for your inventory or stock directly to your supplier. This means that if you’re having cash-flow issues, you can still fulfil your orders.

Lenders can even pay your supplier in local currency to avoid foreign exchange loses!

HOW MUCH DOES IT COST?

Lenders will provide up to 100% of the cost of the inventory. There is a fee on top which is usually between 1.2% and 3% per 30 days.

CASE STUDY

Yaniv sells electric scooters. The scooters are manufactured in Germany, and he wants to place an order soon to avoid a lack of stock on his website. So he turns to trade finance in order to afford this.

Yaniv places an order of €50,000 worth of scooters using a trade finance loan at a rate of 1.5% per month. The lender purchases the scooters from the manufacturer and 3 months later Yaniv has €100,000 cash as a result of selling all the stock. Yaniv repays the lender €50,000 plus the 4.5% fee - €2250.  

WHAT TRADE FINANCE LENDERS ARE LOOKING FOR

Your business must have:

  1. an established relationship with your supplier.
  2. a track record of successfully selling the products you are buying.

WHAT WE LOVE ABOUT THE TRADE FINANCE LOAN

  • The trade finance loan frees up cash flow for your business. This is especially useful when you have challenging payment terms with your customers.
  • Many providers offer a selective invoice finance service where you can pick and choose which invoices you need funded.

WHAT TO WATCH OUT FOR

  • Trade finance loans can be less flexible than other types of funding.
  • The main thing to look out for are the additional fees. Check the contract. (If you’re unsure - let us know, we can help.)


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