Trade finance has been a term that’s used over and over in a lot of business-related articles nowadays. So we interviewed James Sinclair at Trade Finance Global in order to properly introduce us to trade finance and how businesses can benefit from it.
What is Trade Finance and how does it help businesses?
Trade finance is an umbrella term used to describe the financing of trade of goods or services overseas. Some $3tn US of trade is exchanged each year, yet according to the International Chamber of Commerce, the number of small businesses struggling to access it is increasing each year. This is concerning, and Trade Finance Global stand between businesses and funders to help structure finance for these companies.
Within trade finance, the Letter of Credit is the primary export finance mechanism for SMEs. When transporting goods or services overseas, a Letter of Credit is issued by a bank as a form of security over the goods whilst they are transported from the seller to the buyer. Trade finance helps bridge the cashflow/working capital gap in the case that a buyer won’t raise an invoice (normally because the goods are unfinished and the job is not yet complete).
Trade finance also encompasses receivables finance – as companies are finding increasing amounts of working capital tied up in unpaid invoices and receivables, invoice or receivables finance is a mechanism which frees up cash that sits as debt on a balance sheet. As a result of unpaid invoices (some companies might not pay up until 90 days after the transaction), companies can find it difficult to pay employees, suppliers or grow the business.
How does Trade Financial Global help in this matter?
Trade Finance Global is the largest structured and trade finance broker, helping hundreds of businesses access millions of dollars worth of trade and export finance. TFG works to provide cash flow funding to any business trading globally, alleviating some of the issues associated with doing business abroad, cross-border trade, and complex company structures in different jurisdictions.
By facilitating trade, TFG is opening up opportunities for businesses looking to grow into new markets or trade internationally, which helps spread risk, diversify business, and grow revenue.
Are big banks not providing finance anymore in EMEA and the UK?
No. Big banks and larger financial institutions continue to financially support larger corporate and FTSE companies. However, the risk appetite for supporting growing companies is certainly decreasing amongst the high street banks. This means that small to mid size companies looking for small finance facilities (e.g. £100k – £10m) often struggle to find the right funders or the appropriate facilities to finance their trade.
What is happening in the receivables and trade finance space in the UK / EMEA, is it growing?
Trade and receivables is a rapidly growing market in EMEA and the UK, in comparison to the steadily growing business lending market in Australia. However, given volatility around political events (e.g. terrorism and Brexit), companies are facing issues around currency, the ability to trade in certain markets, and banks are subsequently pulling away from offering small trade facilities for small businesses. This is a problem, and despite the objective to grow and increase trade, growth is slowly stalling.
However, the need for finance solutions and alternative finance is growing. In the debt space, the SME market is demanding new solutions to help quickly boost cash flow, and TFG are able to get deals on the table quickly. With the help of technology driven players and agile funders who are able to assess risk and offer finance faster than the big banks, intermediaries such as TFG are providing faster access to businesses that really need it.
What’s next for Trade Finance Global?
Trade Finance Global continues to expand and now brokers trade finance in around 20 markets around the world.