Trade finance

Lee

We turned to Swoop for support with securing funding for our company’s expansion, and I’m thrilled to say they delivered above and beyond our expectations. From the very start, Adrian and Nichola were outstanding – professional, knowledgeable, and always willing to go the extra mile to help us achieve our goals. The process was seamless, with clear communication every step of the way. They took the time to understand our business, worked diligently to identify the best funding options, and ensured everything was in perfect order. Their expertise and guidance gave us the confidence to move forward and grow the business as planned. Thanks to Swoop, we now have the funding we need to take the next step in our journey. I can’t recommend them highly enough for any business looking for financial solutions. A massive thank you to the Swoop team for helping us turn our vision into a reality. I’ll definitely be returning when we take on our next stage of growth

Dec 17, 2024

Chris Palmer

We have used Elizabeth on 2 recent funding transactions. She is a star. Always checked in at end of day where things were at & updated me. Great customer service & would certainly recommend her. Thankyou Elizabeth.

Dec 12, 2024

Mike maur

It's been a pleasure dealing with Elizabeth, Def a Gem for her business. Amazing communicator and process dealing with all the paperwork was made easy and stress free. Keep it up !

Nov 28, 2024

Nasir Abbas Kazmi

I applied vehicle Finance through Swoop & lady Ikra help me from Beginning to end,she s very professional & helpful. Its just took 3 to 4 days & now i got new vehicle. I received Best customer services from Ikra & High recommend for this Swoop Finance.

Nov 26, 2024

Hazel Cuizon

Ayesha was very prompt and friendly to deal with and answered all my questions in a timely and professional manner. Very happy, highly recommend 🙂

Nov 24, 2024

Andrew Frazer

Cynthi was a fantastic help in organising what was needing and obtaining finance

Nov 8, 2024

Chris Skeates

Predrag and the Swoop team have been outstanding. Very attentive to our needs and staying on top of our funding request with their partners.

Oct 24, 2024

Leo Tsuo

Great experience. They quickly understood my needs and was fast to find a lender that met those needs. Highly recommend

Oct 22, 2024

Kash De Silva

I had a fantastic experience working with Elizabeth Tan for my business lending needs. She provided exceptional support and guidance, helping me navigate the process with ease. Her expertise and dedication were instrumental in taking my business to the next stage. I highly recommend her to anyone looking for lending assistance!

Oct 15, 2024

Shannon T

Cynthia has gone above and beyond, explained the process, consequences, and found me the most suitable solutions for my business in a very busy time! I found the help (even before I was guaranteed to use them) invaluable and the help made all the difference!

Oct 9, 2024

Add a header to begin generating the table of contents

Page written by Ian Hawkins. Last reviewed on December 13, 2024. Next review due April 6, 2025.

If you’re a wholesaler, distributor or importer, a trade finance loan can give you the cash you need to buy inventory or stock from a supplier, in order to fulfil an order. It’s a form of working capital finance. It falls under the broader banner of trade finance.

Add a header to begin generating the table of contents

What is trade finance?

Trade finance is an umbrella term that covers many financial products and instruments used by businesses to reduce the risk of trading abroad. These risks are specifically related to importing, exporting and domestic trade. Trade finance is a broad term that encompasses a range of financial products utilised by banks and companies to make trade transactions possible.

For example, a trade finance loan can give you the cash you need to buy inventory, or stock from a supplier, in order to fulfil an order. In this narrow definition of trade finance, it’s another form of working capital finance and has a lot in common with purchase order finance and supplier finance.

How does trade finance work?

As an example, let’s imagine that you have a confirmed purchase order from a customer and wish to either import stock or inventory, or export products for resale. This is the point at which you could contact a trade finance lender. The lender would look at you favourably if both your customer and supplier were established businesses. Their loan would pay your supplier (in this case the exporter) before you (the importer) receive the goods.

Effectively, your trade finance lender acts as a third party to mitigate payment risk and supply risk, which means that goods can be shipped to you more quickly, so that you can fulfil your order.

A trade finance loan (trade loan) works like this:

Your supplier invoices the trade finance lender for the shipped goods
Your customer then pays the trade finance lender
Finally the lender pays you the profits, minus fees.

The loan helps you close the payment gap at the beginning of your sales cycle. It can also work alongside any existing finance your business might have, such as invoice factoring or asset finance.

What types of trade finance are there?

Some people refer to a trade finance loan as ‘trade finance’. At Swoop, trade finance is a catch-all term for a much broader range of products and instruments designed for businesses who trade internationally. These include trade finance loans (as described here), invoice factoring, supplier finance and export finance.

Trade finance loans (or ‘trade finance’ if you are using the narrow definition) are based on purchase orders and are therefore sometimes referred to as purchase order finance or import finance.

It’s easy to confuse a trade finance loan (or ‘trade finance’ if you are using the narrow definition) with supplier finance (or supply chain finance), because a trade finance loan helps you fund the beginning of your supply chain. You should be aware, however, that supplier finance is a different type of business lending that buyers offer to their suppliers.

Why use trade finance?

Trade finance mitigates potential risks to businesses that carry out international and domestic trade. These risks may include:

A party not paying
A party not supplying as agreed
Bankruptcy of one party
Currency fluctuations
A party being unable to get the funding they need to fulfill their obligations
Accidents or loss during shipment

Trade finance helps to mitigate these risks by providing financial instruments such as letters of credit, trade guarantees and documentary collections that ensure payment and delivery of goods.

Beyond all of this, trade finance also offers other services such as financing working capital and providing credit insurance, which are essential for companies engaged in international trade to grow their business.

Overall, trade finance plays a vital role in facilitating global trade and ensuring that trade transactions are executed efficiently, safely and securely.

Benefits of trade finance

As well as mitigating the risks outlined above, trade finance offers a number of benefits for businesses engaged in international trade. Here are some of the key advantages:

Improved cash flow

Faster payments: Trade finance solutions, such as factoring, allow businesses to receive early payments for invoices, optimising cash flow and reducing the time spent waiting for payments.
Reduced payment gaps: Bridging the gap between the time goods are shipped and payment is received helps businesses maintain a steady cash flow, even during periods of fluctuating demand.

Access to capital

Increased borrowing capacity: Trade finance facilities can enhance a business’s borrowing capacity, allowing them to access additional funds for growth and expansion.
Lower cost of financing: Trade finance often offers competitive interest rates and flexible repayment terms compared to traditional financing options.

Market expansion

Entering new markets: Trade finance enables businesses to enter new markets and establish relationships with international suppliers and customers.
Larger order volumes: By securing financing, businesses can place larger orders with suppliers, potentially benefiting from economies of scale and discounts.

Enhanced supply chain efficiency

Streamlined operations: Trade finance solutions can help streamline supply chain processes, reducing administrative burdens and improving overall efficiency.
Stronger supplier relationships: Timely payments and reliable financing can foster stronger relationships with suppliers, leading to better terms and more favourable deals.

Competitive advantage

Improved pricing: By optimising cash flow and reducing costs, businesses can offer more competitive prices to customers.
Faster time to market: Access to capital can accelerate product development and market entry, giving businesses a competitive edge.

Taken together, the benefits of trade finance are that businesses are empowered to navigate the complexities of international trade, mitigate risks, optimise cash flow and unlock new growth opportunities. By leveraging these benefits, businesses can strengthen their position in the global marketplace.

Am I eligible for trade finance?

Trade finance is an attractive proposition for businesses engaged in a wide range of activities including:

Exporters

Manufacturers: Businesses that produce goods for export, such as automotive, electronics and textiles.
Wholesalers: Companies that purchase goods from manufacturers and sell them to importers or retailers.
Service Providers: Businesses that export services like consulting, engineering and IT.

Importers

Retailers: Businesses that import goods for resale to consumers.
Manufacturers: Companies that import raw materials or components for production.
Distributors: Businesses that import goods for distribution to other businesses.

Other eligible businesses

Small and Medium-Sized Enterprises (SMEs): Trade finance can be particularly beneficial for SMEs looking to expand their international operations.
Startups: New businesses with strong growth potential can access trade finance to fund their international expansion.

Eligibility criteria may vary depending on the specific financial institution or provider. Lenders will consider the following factors:

A strong financial track record, including positive cash flow and low debt levels.
A good credit rating and history of timely payments.
Experience in international trade and established relationships with foreign buyers and suppliers.
Assets that can be used as collateral to secure the loan or financing.
A well-defined business plan outlining the company’s growth strategy and financial projections.

By meeting these eligibility criteria, businesses can access a range of trade finance solutions to support their international trade activities and drive growth.

Get started with Swoop

Swoop can help you find a trade finance deal that works for your business needs. Swoop covers the whole of the market and makes comparing deals easy, so you know exactly what you’re getting and what it will cost. To get started, register with Swoop today.

Written by

Ian Hawkins

Ian Hawkins is Head of Content at Swoop. As a freelance business journalist and filmmaker he has reported from Europe, Central and North America and Africa. His films and writing have appeared on BBC World, Reuters and CBS, and he has spoken at conferences on both sides of the Atlantic on subjects including data, cyber security, and entrepreneurialism.

Swoop promise

At Swoop we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. Our goal is simple – to distill complex topics, unravel jargon, offer transparent and impartial information, and empower businesses to make smart financial decisions with confidence.

Find out more about Swoop’s editorial principles by reading our editorial policy.