How do specialised Trade Finance companies differ from Banks?

Exporters are increasingly running into cash flow issues as payment cycles lengthen and more importers seek credit terms on payment. If your funds are held up, you won't be able to pay your vendors on time or stock up on materials for future orders. This could stifle expansion and potential, ultimately detrimental to your export business's success.

Exporters often use bank loans to bridge this funding gap. However, bank lines are unsuitable for Trade Finance Service due to the following reasons:

Collateralized:

When you apply for a loan from a bank, they will want you to provide tangible collateral, such as a piece of property or some machinery. You won't be able to have access to bank lines if you don't have any collateral to put up.

Limited:

There is a direct correlation between the value of your fixed assets and the quantity of financing you may get from a bank. However, companies often have sales that are much beyond their fixed assets and need more capital to export their surplus through traditional banking channels. In addition, you'll need access to your locked-up working capital during peak seasons when you may be experiencing additional demand, but banks will only extend your facility.

Recourse-based:

Banks will still look to you, the exporter, for payment if your importer defaults or declares bankruptcy. You would have to make payments directly from your capital, or the banks could seize your possessions. Exporters are exposed to a significant amount of risk as a result, as the default of a single importer might completely wipe out their profits for the year.

Originally published at https://www.emeriobanque.com.