SME finance | 2023 SME trade finance guide

SME Trade Finance Guide

Welcome to the SME trade finance guide.

This free SME trade finance guide, brought to you by Trade Finance Global and several industry partners, aims to help small and medium-sized enterprises (SMEs) learn about and access finance for importing and exporting goods.

So whether you’re a seasoned trader or a first-time importer or exporter, we hope this primer can help introduce you to the world of trade finance.

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 $3 trillion annually.

Trade finance‘ is an umbrella term that includes a variety of financial instruments that an importer or exporter can use.

These include:

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.

Download our free SME trade finance guide

What’s in the SME Trade Finance guide?

The guide describes the main types of trade finance structures available to SME importers and exporters, outlines the methods of payment, risks and challenges, and shows how to access trade finance from various lending sources.

  • Why is trade finance necessary?
  • Who benefits from trade finance?
  • What are the main benefits of trade finance?
  • Types of trade finance
  • Methods of payment in trade finance
  • Pre-shipment, post-shipment, and supply chain finance
  • Risks and challenges in trade finance
  • Types of trade finance lenders
  • How to secure trade finance
  • How to apply for a trade finance facility

Contribution Partners for this guide

Contribution Partners for this guide

Download our free SME trade finance guide

Frequently Asked Questions

Why is trade finance necessary?

Estimates indicate that 80-90% of global trade, worth approximately $10 trillion per year, relies on trade and supply chain finance.

This makes trade finance – which can also be referred to as supply chain finance, import finance, or export finance –  a massive driver of economic development by helping to maintain the flow of credit in supply chains. 

Who benefits from trade finance?

Many stakeholders, including corporates, SMEs, and governments, benefit from the added economic boost that comes from trade finance.

Companies use trade finance to increase the volumes of goods and services they trade, fulfil large contracts, and scale operations internationally.

Governments also assist with guaranteeing trade finance, as they aim to increase the trade of goods and services.

What are the different types of trade finance, available to SMEs?

‘Trade finance’ is a catch-all term for the financing of international trade. 

There are several different types, but these are generally categorised as:

What are the different methods of payment for SMEs in trade finance?

In this SME trade finance guide, we cover the four most popular types of payment methods: cash advances, letters of credit (LCs), documentary collections (DCs), and open account sales.

Each of these payment types introduces different levels of risk for the importer and the exporter. 

When establishing a new relationship, buyers and sellers usually use intermediaries, such as banks, to limit risk, since the intermediaries can guarantee that payments are made on schedule.

As trust develops between a buyer and seller, businesses may switch to cash advances or provide trade credit on open account terms.

These latter methods, while introducing additional counterparty risk, reduce fees and create a faster and simpler payment environment.

As a business owner, it is important to understand the different risks of each type of payment method, to see which one is most favourable and suitable for your business requirements.

Has the COVID-19 pandemic made SME access to finance harder?

The COVID-19 pandemic has exacerbated the challenges for SME access to trade and export finance since financing providers perceive a jump in supply chain disruptions and increased non-delivery and non-acceptance risks.

However, in many countries supplying the UK, default risk on trade-related short-term financing remains relatively constant at around 2% and trade in some sectors is at levels above those of the same period in 2019.

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How can we help?

The TFG team works with the key decision-makers at 270+ banks, funds, and alternative lenders globally, assisting companies in accessing trade and receivables finance.

Our international team are here to help you scale up to take advantage of trade opportunities. We have product specialists, from machinery experts to soybean gurus.

Often the financing solution that is required can be complicated, and our job is to help you find the appropriate trade finance solutions for your SME.

Read more about Trade Finance Global and our global team.

Download our free SME trade finance guide

Download our free SME trade finance guide

Access trade, receivables and supply chain finance

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