What is Trade Finance?
Trade (or commonly known as import) Finance is a facility that allows you to pay for goods imported from your overseas suppliers.
These facilities are set up in the currency you deal in, for example if you have a supplier in Europe who invoices you in Euros, you can have the facility set up in Euro.
The facility can be set up other currencies such as Pounds, US Dollar, Japanese Yen, Chinese Yuen and other major currencies.
Repayment terms are negotiated based on the size of the facility, type of industry and terms of your agreement with your supplier.
Trade Finance sounds complicated, what’s the advantage of setting up this facility?
Trade finance is actually quite easy to set up. It just involves a review of your agreement with your supplier, the currency you deal in and the terms of delivery. Set up can happen as quickly as 1 to 2 weeks depending on the size and currency of the loan.
Distinct advantages of trade finance vs other forms of business loans include the following:
- Ease of payment transactions, as the facility is set up in the foreign currency there’s no need to gamble on exchange rates and you don’t have to worry about converting to Australian dollars
- Interest rates could be cheaper than domestically. As the loans are commonly set up in foreign currencies, the interest rates are often aligned to reflect the foreign market. For example, if interest rates in the USA are 5% and interest rates in Australia are 8%, you could save 3% in interest
- Depending on the strength of your business and the type of goods being imported, banks may look at taking your stock being imported to secure your loan. This could free up equity in property you own for other uses
- Interest is charged on the balance you draw down. Unlike some commercial facilities that require the full balance to be drawn at settlement, Trade finance is set up as a limit and you only draw what you need.
How do I know if I’m eligible for Trade Finance?
If you need to import goods for your business, trade finance could be a suitable option for you. There are little restrictions on the types of industries that can use this type of finance and loans can be approved for just about any type of goods. The most common industries that use trade finance are:
- Retail/Wholesale industries
- Mechanical industries
- Specialist importers such as stone, tile and art
- Building/construction industries
If you would like to know more about trade/import finance, please contact our staff.
