Trade loans are a well-established trade finance technique, tailored to a company’s trading cycle. They are flexible and short-term in nature, and are predominantly used by exporters, importers and domestic traders to extend their working capital.
By using a trade loan facility, a company can supplement the gap in their cash flow between the purchase of a product and the repayment they receive from an end-user. This enables businesses to pay suppliers on time, thus enhancing their reputation and building a trustworthy relationship between supplier and buyer.
This type of financing option reduces overall borrowing costs as you can borrow the relevant amount for regular or one-off purchases. Once the facility is agreed to be put into action, the borrower presents drawdown documentation to the lender.
Drawdown documentation includes all relevant documents associated with the transaction. It is important to note that according to the type of agreement stipulated in the contract, the lender may or may not have control over the documents provided.
There are three main costs associated with this facility that the borrower must bear in mind. The primary cost to consider when deciding to take out a trade loan is interest. Interest is charged on the amount borrowed and can fluctuate according to the likelihood of a company folding.
Another important cost to take into account is the agreement fee. Otherwise known as administration charges, they are stipends payable to the lender to reserve the funds and cover the charges of administering and monitoring the loan. These charges will vary depending on the size and complexity of your business, and any associated risks.
In addition to the above conditions, trade loans are usually provided in conjunction with other trade products. This includes documentary credits, whereby the lender undertakes payment of shipment provided the borrower provides the necessary documentation on time. This guarantees exporters security in international trade from the importer’s bank.
Apart from offering up to 6 months repayment, Ellinas Finance also provides flexible downpayment ranging from 20% to 40% depending on the type of product. At Ellinas Finance, we aspire to promote organic business growth and security for the future of your business.