Trade finance

Trade finance is suited to importers and exporters whose growth is constrained by the gap between paying a supplier and collecting payment from the end buyer, rather than by the underlying profitability of the trade. A distributor that has won a large new order but lacks the cash to fund the deposit and shipment, or an exporter waiting sixty to ninety days for an overseas buyer to pay, are typical candidates.

Because the funding is assessed against the specific transaction and its counterparties rather than the borrower's full balance sheet, trade finance is often accessible to businesses that would not yet qualify for larger unsecured working capital lines. It is less suited to open-account trade with weak documentation or to counterparties in jurisdictions where payment enforcement is difficult.

A letter of credit is issued by the buyer's bank, guaranteeing payment to the supplier once shipping and quality documents are presented in accordance with its terms; it substitutes bank credit risk for buyer credit risk. Import finance advances funds to pay the supplier, repayable once the imported goods are sold or the buyer settles. Pre-export finance advances against a confirmed offtake contract before goods are produced or shipped.

Purchase-order finance funds the supplier payment against a confirmed customer order, typically for a defined margin above cost, while supply-chain finance programmes allow a supplier to be paid early against invoices approved by a creditworthy anchor buyer, at a discount reflecting the buyer's credit standing rather than the supplier's own. Each structure is documented around the transaction cycle rather than a general facility limit.

Funders assess the creditworthiness and track record of all counterparties in the chain — buyer, supplier and, where relevant, any freight forwarder or inspection agent — alongside the clarity of the contractual documentation. A well-drafted purchase contract, clear Incoterms and verifiable shipping documentation materially improve fundability compared with informal or verbal arrangements.

Jurisdiction and sector also matter: trades involving sanctioned goods, high-risk countries or complex re-export chains face additional compliance scrutiny and may require credit insurance or a confirming bank. First-time importers can generally access funding, but initial limits tend to be conservative until a repayment track record is established.

Trade finance is typically priced as a combination of an arrangement or facility fee, a discount margin applied to the funded period, and, where letters of credit are used, confirmation and issuance charges levied by the banks involved. Because facilities are transaction-specific, indicative all-in cost varies considerably by counterparty risk, tenor and jurisdiction, but shorter, well-documented transactions with strong counterparties generally price more favourably than long-tenor, higher-risk trades.

Credit insurance, where used to support non-recourse elements of a structure, adds a further premium but can materially improve the terms available by transferring buyer non-payment risk away from the funder. Businesses should budget for these layered costs when assessing the true margin on a trade rather than looking at headline facility pricing alone.

GFG reviews the underlying trade documentation, counterparty details and jurisdictional considerations before approaching providers with relevant sector and geographic expertise, since trade finance appetite varies considerably by commodity type and trade corridor. A clear purchase or sale contract and evidence of the buyer's and supplier's standing significantly speed up this process.

Indicative terms for a single, well-documented transaction can often be obtained within one to two weeks, with facilities for repeat or programmatic trade taking longer to structure but offering more efficient terms over time. As with all GFG mandates, no fee is charged until funding is in place.