Trade Finance

Today, trade finance is a massive, trillion-dollar business. As the world trades more and more goods and commodities are bought and sold, so more and more banks and financiers are needed to lend money to finance the purchase and sale of these goods and commodities – right across the global supply chain. Trade finance is the method importers and exporters of commodities and goods use to finance their business. Basically, trade finance has been in existence for many thousands of years – and one can trace the roots of trade finance and structured trade finance right back to the early days of China and the silk route, Mesopotamia and Europe. Trade Finance was around long before Europeans settled in America and long before the world’s stock markets were born!

How is trade finance and structured trade finance useful?

Take an example: imagine you are a trader in cocoa beans in Cote d’Ivoire, buying beans locally and selling them to foreign buyers. To make your purchases, you will need to have money to buy the cocoa up-country in Africa, prior to their export. Where will you find money to make these purchases? And supposing you are the international buyer; the shipper, purchasing from cocoa traders all over West Africa – how will you finance your transactions, which at any one time may exceed your cash reserves? What might be supported by your bank who, if they are traditional lenders, will only lend against your balance sheet?

This is where trade finance and structured trade finance is useful – your business can grow and develop if you use our services at Trade Finance Capital where will structure trade finance structures can be tailored to your needs, using various finance instrument such as Letter Of Credit, Standby Letter Of Credit/Bank Guarantee, the collateral of the goods you are trading, rather than your own balance sheet or other assets.

What is a Standby Letter of Credit/Bank Guarantee?

Bank Guarantee (BG) is where one Bank (the Issuing Bank A) issues an indemnity(cover/insurance) to another Bank (the Beneficiary Bank B) or directly to a Beneficiary, on behalf of its account holder. The Issuing Bank will expect its account holder to pledge ‘assets’/cash to the bank for its issue.

There are effectively two main types of Bank Guarantees,

(1) A Direct Guarantee where the account holder instructs his bank to issue a Guarantee directly in favor of the Beneficiary, and

(2) An Indirect Guarantee where a second bank is requested to issue a Guarantee in return for a counter-Guarantee.

In this case the Issuing Bank will indemnify losses made by this second bank in the event of claim against the Guarantee. A Bank Guarantee is considered a “Demand Guarantee” and as such is governed by the International Chamber of Commerce (ICC) Uniform Rules for Demand Guarantees (URDG).

How can a Bank Guarantee/Standby Letter of Credit help you?

For agents, brokers, corporations, government linked companies, small-medium sized enterprises, and traders can assist in:

Acting as a Performance Guarantee (Performance Bond)

Acting as a Payment Guarantee

Acting as a Conditional Payment Guarantee (Conditional Payment Undertaking)

Guaranteeing and securing a Credit Line/Loan

Acting as an Order & Counter

Guarantee Is trade finance complicated? No. It is a simple business although the structures used in trade finance in more complex deals require a lot of work for all of the parties involved. However at Trade Finance Capital we can arrange and help you obtain this important financial instruments within a 48 -144 hour turnaround time upon full submission of documents required.

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