Trade Finance – United Arab Emirates

2021 Guide | Trade Finance Global

Trade Finance - United Arab Emirates

Welcome to the UAE Trade Finance and International Trade hub. Find out how our UAE-based team can help you access trade finance to increase your imports and exports, or find the latest research, information and insights on trade finance here.

What is trade finance?

Trade Finance is the financing of goods or services in a trade or transaction, from a supplier through to the end buyer. It accounts for 3% of global trade, worth some $3tn annually. ‘Trade Finance’ is an umbrella term, which includes a variety of financial instruments that can be used by an importer or exporter.

These include:

  • Purchase Order Finance
  • Stock Finance
  • Structured Commodity Finance
  • Invoice Finance (Discounting & Factoring)
  • Supply Chain Finance
  • Letters of Credit (LCs) and;
  • Bonds & Guarantees

The terms Import Finance and Export Finance are used interchangeably with Trade Finance.

In order to address some of the common issues and misunderstandings around Trade Finance, we have put together this short guide.

How can trade finance benefit my UAE-based business?

Trade finance facilitates the growth of a business by securing funds required to purchase goods and stock. Managing cash and working capital is critical to the success of any business. Trade finance is a tool which is used to unlock capital from a company’s existing stock or receivables or add further finance facilities based on a company’s trade cycles.

Why does this help? A trade finance facility may allow you to offer more competitive terms to both suppliers and customers, by reducing payment gaps in your trade cycle. It is beneficial for supply chain relationships and growth.

Other benefits of trade finance

  • Short to medium-term working capital, using the underlying products or services being imported/exported as security/collateral. It increases the revenue potential of a company, and earlier payments may allow for higher margins.
  • Trade finance allows companies to request higher volumes of stock or place larger orders with suppliers, leading to economies of scale and bulk discounts. 
  • Trade finance can also help strengthen the relationship between buyers and sellers, increasing profit margins. It allows a company to be more competitive.
  • Managing the supply chain is critical for any business. Trade and supply chain finance helps ease out cash constraints or liquidity gaps – for suppliers, customers, third parties, employees or providers. Earlier payments also mitigate risk for suppliers.

It is important to note that trade finance focuses more on the trade than the underlying borrower, i.e. it is not balance sheet led. Therefore, small businesses with weaker balance sheets can use trade finance to trade significantly larger volumes of goods or services and work with stronger end customers.

Due to the embedded risk mitigants that surround trade finance lending and instruments, it leads to the potential of a diversity of supplier base for trading companies. A more diverse supplier network increases competition and efficiency in markets and supply chains.

Companies can also mitigate business risks by using appropriate trade finance structures. Late payments from debtors, bad debts, excess stock and demanding creditors can have detrimental effects on a business. External financing or revolving credit facilities can ease this pressure by effectively financing trade flows.

 

Get started – talk to our UAE team



If you have a trade finance enquiry, please use the contact form below.

 

Finance Queries:

uae.team@tradefinanceglobal.com

trade.team@tradefinanceglobal.com

Partnership Queries:

introducers@tradefinanceglobal.com

Find out more about partnering with us here.

 

Want to learn more about Trade Finance?

Look no further. We’ve put together our feature UAE trade finance insights, research and articles, and you can catch the latest thought leadership from the TFG, listen to podcasts and digest the latest in international trade in the MENA region right here.

From the Editor – Trade Finance Insights

TFG’s Accelerate Scholarship is back! TFG brings back $1,000 Accelerate Scholarship due to high demand to bridge the trade skills gap 
VIDEO: Steady, dynamic growth – Santander’s Bertrand de Comminges on why corporates are moving into supply chain finance After another year of disruption for much of the global economy in 2021, one sector that has emerged mostly unscathed – except for one high-profile collapse – is supply chain finance.
5 trade finance techniques Explained: How these 5 trade finance instruments can help your business grow in 2022 Letters of credit, forfaiting, factoring, export finance, and trade credit insurance: the most popular trade finance techniques companies are using in international trade
Digital Transformation- A Powerful Tool for Growth in the Middle East Digital Transformation: a powerful tool for growth in the Middle East Trade and economic activity are advancing at a rapid pace across the Middle East. How are governments across the region evolving and harnessing opportunities to enable high-speed economic activity?
TFG Weekly Trade Briefing TFG Weekly Trade Briefing, 24th May 2021 Your morning coffee briefing from TFG. World trade’s recovery from the COVID-19 crisis hit a record high in the first quarter of 2021, increasing by 10% year-over-year and 4% quarter-over-quarter. WTO Director General calls for action on trade finance in low to middle-income countries.
TFG Weekly Trade Briefing TFG Weekly Trade Briefing, 6th April 2021 Your Monday morning coffee briefing from TFG. The WTO is forecasting growth in global merchandise trade of 8.0% this year following a contraction of 5.3% in 2020.
TFG Weekly Trade Briefing TFG Weekly Trade Briefing, 29th March 2021 Your Monday morning coffee briefing from TFG. A container ship ran aground, blocking the Suez Canal which carries about 12% of global maritime trade. The blockage may take some time to clear, further disrupting global shipping, already beset by high freight costs and delays caused by the pandemic.
ITFC CEO Exclusive Advancing intra oic trade in the new normal ITFC CEO Exclusive: Advancing intra-OIC trade in the new normal As the COVID-19 pandemic unfolded in the first quarter of 2020, governments around the world were forced to take drastic actions to counter the socio-economic challenges posed by the crisis.
Standardisation 2.0 - ICC DSI's 5 year plan - Fireplace chat with Oswald Kuyler VIDEO: Standardisation 2.0 – ICC DSI’s 5 year plan – Fireplace chat with Oswald Kuyler Oswald Kuyler, Managing Director of ICC DSI talks to TFG about promoting digital trade, harmonisation and trade standards.

Videos – Trade Finance

Trade Finance Frequently Asked Questions

What types of Trade & Receivables Finance does TFG offer?

TFG assists companies to access trade and receivables finance through our relationships with 270+ banks, funds and alternative finance houses.

We assist specialist companies to scale their trade volumes, by matching them with appropriate financing structures – based on geographies, products, sector and trade cycles. Contact us to find out more.

Trade Finance & Stock Finance

  • Trade Finance (Purchase Order Finance)
  • Stock Finance
  • Pre Export Finance
  • Import & Export Finance
  • Structured Commodity Finance
  • Letters of Credit
  • Bonds & Guarantees

Receivables Finance & Invoice Finance

  • Receivables Purchase
  • Invoice Finance
  • Discounting
  • Factoring
  • Supply Chain Finance

Specialist Trade & Receivables Finance

  • Borrowing Base Facilities
  • Back-To-Back LC Lines
  • Long Dated Receivables – Media, Sport
  • Revolving Credit Facilities (RCF)
What is the process for applying for trade finance?

1. Application

The initial ‘credit’ application drives the process when applying for credit.

Lenders will often ask for information on current assets or collateral that the business owns, including debt and overdrafts, assets that the company or directors own (property, equipment, invoices).

2. Evaluating the Application

The evaluation process will normally involve some kind of credit scoring process, taking into account any vulnerabilities such as the market the business is entering, probability of default and even the integrity and quality of management.

3. Negotiation

Eligible SMEs applying for trade finance can negotiate terms with lenders. An SME’s aim with a lender is to secure finance on the most favourable terms and price. Some of the terms that can be negotiated can include fees and fixed charges, as well as interest rates.

4. The Approval Process and Documentation of a Loan

Typically, the account officer who initially deals with the applicant and collects all of the documentation will do an initial credit and risk analysis. This then goes to a specific committee or the next level of credit authority for approval. If the loan is agreed (on a preliminary basis) it goes to the legal team to ensure that collateral can be secured/ protected and to mitigate any risks in the case of default.

Read our full ‘trade finance application process’ here.

Strategic Partners:

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Quick Links

Latest UAE feature from Trade Finance Talks

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About the Author

Trade Finance Global (TFG) assists companies with raising debt finance. While we can access many traditional forms of finance, we specialise in alternative finance and complex funding solutions related to international trade. We help companies to raise finance in ways that is sometimes out of reach for mainstream lenders.

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