Trade Finance for Small Businesses

Due to the current economic climate, many businesses are looking for ways to expand, small businesses in particular, but expansion can also be threatening as it will require a bit of heavy investment mixed with potential financing.

A good way to get financing outside of the natural borders is by looking into a type of business finance that is known as trade finance. With trade finance a business can fund the gap that often occurs between their sale and purchase of goods. This allows businesses to take advantage of the global trade market in order to expand the scope of a business accordingly

To help paint a clearer picture, it is helpful to take a better look at what trade finance really is.  It is a type of funding that allows importers to get access to the instant funds that they need by placing equity in established customer orders.

In other words, if a business already has a large amount of orders, but does not have the funds to deliver the orders they may want to open a trade finance account so that they can get the orders delivered and capitalise on the profit. Since a small business can have orders globally as well, this opens up this type of funding to them as well.

Trade finance, in short, is usually a short term type of financing that helps a business get the cash they need to continue their operations, and for a small business that is on the merge of expansion but just needs a bit more cash to complete their expansion it can be a very ideal solution.  Essentially, so long as you continue to build your sales ledger up and expand your customer base, you can rest assured that you will have the financing you need to make all of your orders are filfilled.

For small businesses that can realize the real potential of trade finance, a simple break down of how it works could be helpful. Almost all trade finance contracts are put in place next to any invoice finance in order to determine how much funding needs to be given out based on the value of the completed sales that you have made.  This is just about the only factor that you need to have available in order to get approved for a trade finance account to be approved.

The cycle begins when your customer orders a good, and then you get the goods from your supplier. The supplier will then need to be prepaid for goods before they can be delivered, but you will not have to worry about this since you already have a confirmed order for them and a trade finance lender that will offer you as much as 100% of the invoice order so that you can pay the supplier with the bank account and receive the goods in a very timely fashion. It is one simple letter of credit, but it makes mass business transactions easy and virtually painless.