Financing the Trade Cycle

As an international trader (importing, exporting or both), is your bank offering you finance which matches your trade cycle?

Over the past few years regulations have dictated that banks have to lodge more funds centrally if they provide their customers with facilities, notably overdrafts. Unsurprisingly, banks are therefore seeking to provide alternative financing structures which attract less centrally held funds.

This can work well for a bank's customers too, and Trade Loans can be structured to match with funding gaps for importers and exporters. This type of facility can be used in conjunction with traditional trade solutions such as Letters of Credit or Documents and Bills for Collection, or (given the right circumstances) in support of open account transactions.

Best advice is to ensure that your bank's international trade manager fully understands your trade cycle/s and recommends a loan facility to match with that funding gap. You should seek an improved lending margin other than that traditionally charged for an overdraft, as the bank is benefiting as mentioned previously. 

Most banks will require you to establish these loans with their Trade Services Centres, so again, you should be compensated (by a better borrowing rate) for this extra administration. The overall benefit for a bank's customers being funded in this way is a reduced cost to borrow, with facilities that accurately match their funding needs. The banks benefit as they will understand exactly what their lending is funding (i.e. the goods) and they will need to deposit less funds centrally.