Using Trade Finance to Grow a Small Business

Many small businesses struggle to expand due to the lack of financial means which would enable them to make more investments. There is a financial option that a great majority of companies use, called trade finance.

Trade finance can be an ideal solution for small trade companies to expand their business, for a variety of reasons. In a nutshell, trade finance is offered by a third party that serves as a middleman between a business and its supplier. A trade finance company pays the supplier and oversees the trade process. Keep on reading to find out the reasons why using trade finance is beneficial for the growth of small businesses.

Trade finance is easy to apply for

First of all, trade finance is simple and quick to apply for, as opposed to getting a bank loan. While acquiring a bank loan involves a lot of paperwork, trade finance requires minimal documentation. What is more, it may take too much time for the money you loaned from a bank to be transferred into your account.

On the other hand, trade finance companies supply the money immediately and take care of other processes, such as bookkeeping. Digitized trade finance companies have their own digital platforms where you can follow the whole supply chain process. This gives small companies more time to focus on product sales, and subsequently, grow their business.

It enables you to pay your suppliers upfront

A major perk of trade finance lies in the fact that it helps keep the whole work process going smoothly. That’s because it enables companies to compensate the suppliers upfront, without waiting to get paid by their own customers.

Not only that but you may get some discounts from your supplier for paying in advance. The money you save can be used on expanding your business to more locations, for example.

You can find reasonable interest rates

Another reason why using trade finance fosters business growth is its cost-effectiveness. Some suppliers may offer you a vendor credit line but the issue can be the fact that you then have to agree to their terms.

By using trade finance, you get to choose the financial institution that offers financial services and products which are in line with your needs.

This will take a bit of research since different institutions have their own distinct terms and products but the good thing is that you have many options to choose from.

For example, one such company that offers trade finance solutions allows you to set your own trading terms and offers you up to 60 interest-free days. Therefore, you get to opt for an interest rate that you can afford and avoid running into serious debt.

It gives your business more credibility

Being credible and trustworthy in the eyes of customers and business associates is essential for a business to make progress. This is another aspect where trade finance can help, as it allows you to order the amount of supplies you need, as well as pay for them on time.

By having enough products in stock, you’ll be able to ship the goods as soon as your customers order them. This will give your small business a lot of credibility, as the clients will be satisfied and the vendors will trust you.

The customers and suppliers may thus leave good reviews and recommend your company, which would make your small business blossom.

It can be your security blanket

Finally, trade finance, apart from its purpose of supplying credit, serves as a security blanket for companies involved in the trade business. Since a financial institution stands between the two sides of the trading process, it allows for transparent dealings with less risk of non-payment.

Furthermore, by using trade finance, you won’t need to worry about currency fluctuations when trading internationally. Most of these institutions offer you to choose between a wide range of currencies. For these reasons, trade finance isn’t used only by the companies that don’t have enough funds, as it can be used to make trade more secure.

On a final note

All in all, trade finance can be a stepping stone for small companies, aiding in their growth. As you’ve seen, there are some major benefits that are likely to give your small business a big push. Not only will you be able to cut costs but trade finance also offers you more security and can boost your credibility.

Author: Luke Douglas