Category Archives for "Trade Finance"

Trade Finance For Melbourne Businesses: Definition, Perks and Disadvantages

Trade Finance Definition:

In Australia, trade finance is a type of loan that provides funding to an exporter, before the importer’s goods are shipped over from the foreign country. Typically, the collateral for these loans are the items in transit.

Additionally, most of these cash advances are short-term in nature and meant to facilitate the immediate purchase of certain goods. They are usually paid off upon reselling of those items in the local marketplace. If you own a business in Australia, you can get trade financing from either banks or credit unions which have a variety of financing options to suit your needs. Apart from the loan, some of them may also provide you with financial advice, foreign transaction technologies and even analytics.

How trade finance is helpful to entrepreneurs and what businesses can benefit:

Oftentimes, doing international business can cause cash-flow problems especially for budding entrepreneurs. Many Australian business owners face impediments regularly when it comes to embarking on global projects, or export ventures. Nevertheless, with trade finance you’ll be able to settle payments with your exporter in good time, so as to manage shipment of items within the expected time frame. Furthermore, financing can be tailored to suit your company’s size and business transaction cycle, which can last anywhere from 7 to 180 days.

Generally, trade financing is suitable for import and export businesses that deal with both perishable and non-perishable products. While the loan offers an immediate line-of-credit for working capital, it also comes with various letter of credit options that permit the financier to act as a 3rd party in your global transactions.

Pros:

  • Reduces the risk of going bankrupt. Without trade finance, you may encounter late payments from debtors, excess stock, bad debts and demanding creditors that can have negative effects on your small business. Since trade financing is a form of revolving credit, you can ease the pressure of doing international business and prevent your SME from going under due to financial constraints.
  • Opportunity for greater profit margins. The loan allows you to buy items in bulk or high volume up front, thus generating more returns due to economies of scale and strengthening your relationship with exporters.
  • Improved efficiency and productivity. By working with other global players in trade, you’ll be able to enhance and diversify your supplier network and this shall ultimately create efficiency in your markets and supply chains.

Cons:

  • Exporter payments are not guaranteed in cases where there’s political instability, or the risk of fluctuating exchange rates.
  • In most cases, lenders don’t assume responsibility for transfer risks and won’t be held liable for the items that you receive.
  • Getting a trade finance may cost you a little bit more than a direct bank loan, especially in cases where the amount of goods being shipped is minimal.

Interest rate & fees charged:

Generally, the amount of interest you’ll pay depends on the value of trade finance that you have taken. Additionally, different financiers will have their own unique rates which you should check out before choosing any particular trade finance company. Nevertheless, the average interest rate for trade finance in Australia is 3.80pct. Some financiers can provide loans totaling up to $400k, with flexible repayment patterns lasting between 30, 90 and 180 days.

Alternative sources of finance:

While trade finance is the most popular source of funding for Australian importers, there are still other ways that one can get loan for their small business. They include:

Specialist financiers. These are lenders that invest in a particular industry and have keen interest in it, for instance, there are institutions that only provide funding for agricultural-product importers due to their belief in promoting global agro-economy.

Angel investors. Typically, these are experienced business people looking for opportunities to employ their skills and finances to a business-idea that they believe in, so as to earn good returns for their investment.

Australian companies that offer trade finance:

ANZ

ANZ is a reputable trade & supply chain solutions provider that offers affordable methods of funding your working capital and cash flows. They also have the necessary technology to administer your trade finance transactions, and promote growth in overseas markets for your business.

Scottish pacific

Founded in 1988, Scottish Pacific is one of the largest providers of trade finance in Australia, providing business people with a wide variety of both trade and debtor finance facilities. They have 3 funding offerings which include; tradeline, import finance and export finance.

Merchant Cash

Merchant Cash provides Australian importers with a great opportunity for getting working capital or cashflow, without requiring any collateral. In addition to providing purchase-order finance, they also offer Debtor Finance and Inventory Finance to help with extra cashflow and help maintain sustainable growth.

In conclusion, trade finance can provide sufficient cash flow for businesses operating in the import & export industry, which can help them purchase supplies in good time and enhance their profits.