What Types of Businesses Require a Trade Finance Facility?

Small and medium enterprises in Australia require different types of financing facilities to meet their business needs. One unique financing instrument is the trade finance facility. Trade financing is the opposite of debtors’ finance. It allows business owners to access upfront cash to pay their suppliers in advance. This financing option can help entrepreneurs pay for inventory and manage their working capital needs. But why types of businesses can benefit from trade finance? Let’s break it down and understand the salient features of this facility.

Trade Finance Facility: What Does it Mean?

Trade finance is a solution to manage your short-term working capital needs. A trade finance limit allows a business to pay suppliers before receiving their goods. You can pay the supplier upfront when they deliver or make an advance payment according to their invoice terms. Lenders can fund upto 100% of your suppliers’ invoices so that you can manage these payments on time. Businesses can negotiate flexible repayment terms with their lenders, getting upto 150 days to repay the amount they borrow.

Here’s What You Need to Know About Getting a Trade Finance Facility

This ongoing finance facility can help you borrow anywhere between $100,000 and $150 million. You can use this facility for the following purposes:

• Paying for inventory
• Clearing creditors’ bills
• Optimising working capital

Let’s look at the key things you must know about the trade finance facility:

• Security: You do not necessarily need to submit a real estate security to avail of this facility. The trade finance limit can be secured against the current assets of your firm if the same is strong.
• Interest Rate: The rates are quite affordable for meeting your working capital needs.
• Documentation: The lenders require comprehensive documentation to approve a trade finance facility. You must submit valid identification documents, ATO statements, financial statements, last year’s bank statements, and sample invoices with delivery proofs. Businesses should submit detailed receivables and payment ledgers while applying for a trade finance facility.

Which Businesses Require Trade Financing?

Trade financing is a valuable option for businesses involved in imports and exports. This form of financing supports enterprises that deal in international trade. Firms can use their trade finance limits to pay for goods and services from foreign suppliers. However, trade finance may also help a business in domestic transactions if its suppliers demand advance payment before transferring the goods.

When a business has access to a trade finance facility, it may be able to negotiate better terms with its suppliers. It may secure discounts and favourable delivery terms against the advance payments. A trade finance limit allows the business owner to repay the lender within a time frame of upto 150 days. This period is usually enough to liquidate the supplies and book profits before the repayment.

A trade finance facility enables a business to leverage the following advantages:

• The facility ensures flexible repayment terms with lenders.
• It allows the firm to negotiate with suppliers for getting better transaction terms against advance payments.
• It supports timely procurement to meet the market demand.
• It reduces risks related to foreign exchange and international transactions.

If you want to know more about trade financing, contact the Broc Finance team today. They can help you understand different financing instruments from trade finance to debt factoring according to your needs!