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  November 24th, 2020 | Written by

5 Tips for Small Businesses Exploring Trade Finance Options

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  • Trade finance facilities may be concerned with your business's viability.
  • An increase and fluctuations in currencies are expected when doing business with other companies in another country.
  • When researching facilities, it’s best to consider the type of trade financing they offer.

Just like any other industry, foreign trade businesses require a substantial amount of capital to start and operate. Trade finance makes it possible for small businesses who want to buy bulk goods from international suppliers. With cash available, SME’s can take advantage of buying supplies in bulk and negotiating a discount with the suppliers.

If you’re looking to use trade financing for your company, it pays to know a little bit of how you can make the most out of it. Here are five tips to consider when exploring trade finance options for your small business:

1. Consider the Potential of the Business You’re Applying Financing for

Before actually considering applying for different finance options, it’s smart to evaluate whether the activity you’re getting financing for can produce revenue in the future. Otherwise, you’d be stuck paying for something that isn’t actually making a profit for your business. Plus, if you fail to make payments because the products are not bringing in profits, it could ruin your relationship with the financing company.

The best way to avoid this is to do market research about the business project to determine its profitability. It also helps to explore other opportunities that you might not have tapped into and has the potential of generating higher ROI. Trade finance facilities may also be concerned with your business’s viability, so it’s crucial to show facts (research, projections) to convince them.

2. Ensure Protection Against Changes in the Foreign Currency Exchange

An increase and fluctuations in currencies are expected when doing business with other companies in another country. While fluctuations could mean reduced costs, a substantial increase could mean a loss of profit for the company.

When looking at trade finance options, make sure that the financing facility you’re working with supports the currency you’re doing business in. It’s also helpful to negotiate a fixed rate of exchange and draft it into the contract before starting the business relationship. This would mean that you won’t benefit from any fluctuations and potential savings in cases where the exchange rate fluctuates. But, the stability of having a fixed price would also protect you from potential losses if the exchange rate increases substantially in the future.

3. Look Into the Facilities that Offer Trade Financing Options

Applying for a trade finance option is a big decision for entrepreneurs to make. Considering that they would have to borrow a substantial amount of money, it’s natural for them to worry about the cost it entails. However, taking on precautionary steps and exploring the offers of different companies will help you choose the best deal your company can afford. This will ensure that you won’t miss out on opportunities that will benefit your company in the long-term.

When researching facilities, it’s best to consider the type of trade financing they offer – equity, debt, letters of credit, invoice financing, and others. Compare the prices and identify the options with payment terms that would best suit your cash flow cycle. It’s also smart to consider the ease of access to this financing. How long does the approval process usually take? Do you have to meet specific requirements like minimum revenue or credit score for approval? It’s essential to consider these, especially if you’re in a hurry to get the financing.

It also helps to ask your friends in the industry for recommendations. If they have worked with a specific company before, ask them about their experience. Learning from others is the best way to gauge if the facility is the best fit for you.

4. Talk to the Trade Financing Facility Before Doing Business With Them

Once you’ve narrowed down your options on where to apply for financing, the next step is to come down to their office to discuss their offers. This step is sometimes necessary for determining whether the company will be able to meet your company’s needs and negotiate with them so that you can maximize the financing option. By talking to them in person, you’ll be able to discuss the business and financing needs. If they can help you with it, they can tailor an offer that would best fit your company’s financial capabilities.

Since you’re planning on building a long-term relationship with them,  it’s also vital to know how the financing company handles their clients. Do they offer alternatives in case they cannot meet your financing needs? Do they give out advice? The level of their customer service will help determine whether they care and value their clients or not.

5. Read the Fine Print of the Contract

Finally, ALWAYS read the fine print of the contract. Just like any type of business financing, trade financing entails costs, fees, and other essential facts that can catch you off-guard if you don’t pay attention to the details. As much as possible, take as much time as you need in reviewing the contracts from the financing companies you’re interested in. Be fully aware of your responsibilities and the fees you have to pay for the financing.


Trade financing is a viable alternative to consider when banks refuse to lend small business loans to SME’s to buy supplies internationally. It’s worth noting, though, that every financing facility may have different requirements, so it pays to inquire with them beforehand. Ensure that your company is qualified if you’re planning to pursue applying for trade financing in their facility. Nevertheless, with proper research coupled with the tips mentioned above, you’ll be able to find the right trade finance option and facility that would address the needs of your small business.