HOW DOES TRADE FINANCE WORK?
Trade finance is a type of working capital 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.
Pro-tip: 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 also a fee on top of this, which is usually between 1.2% and 3% per 30 days.
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 ARE TRADE FINANCE LENDERS LOOKING FOR?
Your business must have:
- an established relationship with your supplier.
- 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.)