When it comes to raising capital and financing, companies and firms usually find it challenging to find the easiest way. The collateral obligation, risk thresholds, and unreasonable repayment terms of conventional lenders make financing difficult to access for those looking to expand international trade ventures. Thankfully, trade finance can help solve these challenges.
Trade finance represents the financial instruments, assets, and products used by companies to help international trade and commerce. It enables firms and companies to expand and undertake international ventures that will generate revenue growth, securing higher profits for firms operating in different industries. Furthermore, by providing trade-specific financial products overseen by industry experts, trade financiers help firms solve the difficulties present in international trade.
Trade finance invest in growth
Trade finance provides firms with the best possible opportunity to realize profits from investment in international trade. As a form of a loan, trade finance grants investment into businesses without requiring their owners or the company to offer new investors equity, maintaining their independence and control.
According to a study published in the Journal of Political economy, “trade financiers use their experience and expertise to assess the profitability of each potential venture and lend based on a clear assessment of operational risk. This allows them to provide firms with access to financing without the creative limitations of equity financing or extensive collateral obligations to secure conventional loans, including property and investments.”
This is why trade finance represents a flexible means for companies and firms to capitalize on opportunities they know exist in their industry without inhibiting cash flow. Not only that but since firms can make secure payments in full upfront, they are now empowered to negotiate better terms with suppliers, yielding greater profit from potential investors.
How trade finance supports firms needs
“Trade finance products are designed to provide support to firms as they go through international trade ventures by assisting their dealing with suppliers and other logistics, processing transportation, and regulatory stakeholders. By creating a direct credit line between financiers and importers, trade finance can provide firms with more flexible access to the necessary credit to fulfill the transactions inherent in international trades. Payment solutions to monitor credit and track payments online,” says Jerold Sheppard, CEO of Remington Sterling, a commodity financial firm.
These trade finance products are intentionally made flexible to reflect the complexities of conducting business across international borders. Trade financiers’ global footprint allows them to provide a credit facility for paying suppliers from anywhere in the world. “In other words, trade finance ensures fewer delays in payments and in shipments allowing both importers and exporters to run their businesses and plan their cash flow more efficiently. Think of trade finance as using the shipment or trade of goods as collateral for financing the company’s growth,” written in a study published by the World Bank.
Furthermore, these lengthened terms of repayment support importers with limited cash flow to negotiate better and competitive rates and quantities with suppliers, ship their receivables, and realize profits on the investment through sales before repaying financiers. These products allow firms engaged in international trade to fully meet their financing and capital needs, from handling massive orders at peak demand of cyclical imports to financing expansions into new industries or products.
Opportunities in prospecting deals
Trade finance offers unique terms and products that can turn opportunities in firms’ prospective pipeline into tangible ventures providing profits despite the limitation on their cash flow caused by lengthy international trade cycles. By helping and supporting firms as they conduct their transactions and monitoring the receivables in their way through the supply chain, trade finance can construct the expansion of profitable international trade flows and grow global businesses without complicated and limiting requirements of equity financing.