Top Reasons Why Importers-Exporters Apply for Trade Finance

Many small and medium-sized businesses (SMEs) and entrepreneurs who want to get into import-export trade depend on different ways to get money, like loans. But getting this money isn’t easy for them. They often face rejections, rules, and other problems from traditional banks. Why is that?

Banks are often strict when it comes to approving financing applications from business owners or entrepreneurs with smaller balance sheets, lower turnovers, or insufficient security to offer. This makes it tough for startup owners or SMEs to pay for the goods they want to sell. Even if they have a confirmed order from a buyer, banks are still not interested in giving loans. This is why SMEs prefer trade finance.

Small and large business owners don’t want to wait for payment until the shipment arrives, which can take four to six weeks to reach an overseas buyer. International trade finance services help SMEs with low volumes enter the global trade competition by providing equal opportunities and reducing foreign trade risks.

Also Read: Understanding International Trade Finance, Its Working and Types

Why is Trade Finance Important?

Trade finance is important because it helps businesses buy and sell goods across countries. Banks and financial institutions play a big role in this by providing short-term funding to importers and exporters. This means they lend money to these businesses to help them cover costs, like buying raw materials and storing them in warehouses, while the trade is happening.

Also Read: Types Of Trade Finance Products: Financing Foreign Trade

Trade finance can be used for both international and domestic transactions, helping to reduce payment risks. By using trade finance, importers and exporters can complete their trade deals more smoothly and with less worry about not getting paid.

Why Importers and Exporters Use Trade Finance: Top 8 Reasons

Trade finance helps businesses buy and sell goods worldwide by reducing risks and providing quick access to money.

It Reduces Payment Risks

Trade finance tools like Letters of Credit and Bank Guarantees help remove payment risks in international trade. Exporters want to get paid before sending goods to avoid not getting paid, while buyers don’t want to pay before receiving goods. Trade finance solves this by paying exporters upfront and assuring buyers that the goods have been shipped.

It Provides Instant Access to Capital

Trade finance gives importers and exporters quick access to money, improving cash flow and meeting short-term needs. Banks provide credit based on accounts receivable, helping businesses keep operations smooth by ensuring they have the funds to buy raw materials and fulfill trade requirements.

Importers and Exporters Enjoy Global Competition

Trade finance ensures that payments are made on time and transactions go as planned, giving businesses confidence to compete globally. It fills the financial gap, allowing companies to expand internationally without worries, reducing financial pressure with temporary financing.

It Offers a Variety of Trade Finance Products

To reduce risks, banks and financial institutions offer various trade finance services for importers and exporters, such as:

• Letters of Credit: This legal document ensures sellers get paid on time once they meet all terms and conditions. If the buyer defaults, the issuing bank compensates the amount.
• Bank Guarantee: The bank guarantees payment to the seller only if the buyer fails to pay.