SME Finance | 2022 SME Trade Finance Guide

SME Trade Finance Guide

SME Finance | 2022 SME Trade Finance Guide

Welcome to the SME Trade Finance hub. Trade Finance Global (TFG) have partnered up with a number of associations and institutions to bring you this SME Trade Finance Guide. The guide is aimed to help small and medium-sized enterprises (SMEs) learn about, and access finance for trade, importing and exporting goods. So whether you’re a seasoned trader or a first time importer/ 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 $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.

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?

Trade Finance (also known as Supply Chain Finance and Import & Export Finance) is a massive driver of economic development and helps maintain the flow of credit in supply chains. It is estimated that 80-90% of global trade, worth $10 trillion per year, is reliant on trade and supply chain finance.

Who benefits from Trade Finance?

Trade Finance has many beneficiaries, from Corporates to Small & Medium Enterprises (SMEs), and countries/ governments.

Companies use Trade Finance to increase the volumes of goods and services which 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. Below, we have briefly summarised the main trade finance products which are available to businesses.

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

  • Trade Credit
  • Cash Advances
  • Purchase Order (PO) Finance
  • Receivables Discounting
  • Term Loans
  • Other types of Business Finance
What are the different Methods of Payment for SMEs in Trade Finance?

In trade transactions, payments need to be made in a secure and timely manner. When establishing a new relationship, buyers and sellers usually use intermediaries, such as banks, to limit risk. 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 providing trade credit on open account terms.

Payments in trade finance have varying types of risk: for the importer and the exporter. In this section, we may consider the importer as the buyer and the exporter as the seller.

In this SME Trade Finance Guide, we cover 4 types of payment methods: cash advances, Letters of Credit (LCs), Documentary Collections (DCs) and open account sales. As a business owner, it is important to understand the different risks for each type of payment method, to see which one is most favourable and suitable for your business requirements.

Has 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 as 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%[1] and trade in some sectors is at levels above those of the same period in 2019. This is why we are launching the Guide now.

Latest insights on types of trade finance

Debt vs. equity finance how do European SMEs use third-party financing Debt vs. equity finance: how do European SMEs use third-party financing? Trade Finance Global (TFG) surveyed firms throughout Europe to gain an understanding of SMEs’ trade finance usage norms and their propensity to pay for new or additional trade finance products and services.
SME lending returned to pre-pandemic levels in 2021, but regions still playing catch-up to London, says latest British Business Bank report SME lending returned to pre-pandemic levels in 2021, but regions still playing catch-up to London, says latest British Business Bank report A new report from the British Business Bank (BBB) has found that SME lending in the UK returned to pre-pandemic levels in 2021, writes TFG’s Marcus Lankford.
Freeports: Levelling up UK trade Freeports: Levelling up UK trade Freeports are a special kind of air, rail, or seaport, where normal tax and customs rules don’t apply, says John Lucy, director of Liverpool City Region Freeport
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In this article, FCI’s Lin Hui looks at factoring’s two decades of steady growth in Asia, and where the industry goes from here…

FCI Global factoring statistics 2020 decline FCI reports 6.6% drop in global factoring statistics in 2020 The first estimates for the factoring industry worldwide in 2020 have been announced today by the FCI’s Peter Mulroy. Factoring declines were recorded in most regions except Asia Pacific.
Supply Chain Finance Summit 2021 26th to 27th January 2021 Bank vs Fintech? ESG considerations when selecting an SCF Programme Payables finance is changing, often driven by the demands of corporates, looking for inclusive and sustainable programmes when considering who to select for supply chain financing (SCF) programmes.

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 & 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

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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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