Trade Finance

Trade finance helps businesses fund the gap between shipment and payment in domestic and international trade. It offers timely access to working capital, allowing you to maintain healthy cash flow and pay suppliers on time. 

By bridging the gap between order and payment, trade finance ensures smoother and more efficient transactions. This solution is especially valuable during peak demand periods or when operating with extended credit terms.

Trade finance is a specialised form of loan designed to facilitate international trade and commerce. It helps businesses manage and fund cross-border transactions efficiently by connecting exporters and importers in a secure financial framework. A trade finance loan also mitigates key risks like non-payment or non-receipt of goods. 

Here are some points to note:

• Letters of credit help importers and exporters complete secure and timely transactions

• Trade finance loans bridge the gap between shipment and payment, supporting steady cash flow

• Export credit, factoring, and other financial instruments provide essential working capital to support day-to-day operations

• Trade guarantees and insurance offer protection against risks involved in cross-border transactions

• With financial support and risk mitigation tools, businesses can expand confidently into new and international markets

The main objective of trade finance is to introduce third parties between importers and exporters to reduce the risk associated with transactions. All the parties involved provide the necessary tools to streamline cross-border trading. Here is how it works:

1. Importers and exporters get lines of credit from banks and financial institutions

2. Banks and financial institutions provide a letter of credit to reduce the risks associated with transactions

3. An insurance company insure the goods against any damage during transit

4. Banks and financial institutions exchange documents on behalf of the importer and exporter to guarantee confirmed trade

5. They ensure that both parties fulfil their side of the bargain and meet the specified conditions

6. They also fill the payment gap if needed

7. Exporters release the funds based on factoring to maintain cash flow

A trade finance loan reduces your operational risks by making sure you are working with trusted parties. Here are all the types of trade loans that make trade financing possible and their respective roles:

• Exporters

This is the party that produces or supplies the product which they trade across the border. 

• Importers

Importers are recipients of the goods exported during the trading process.

• Financial Institutions

This party provides instruments required for trading, such as letters of credit and trade credit insurance.

• Insurance Companies

Insurance companies act as financial protectors, offering coverage in cases of non-payment or damage to goods. They help minimise risk and ensure compensation for losses.

• Export Credit Agencies (ECAs)

Export Credit Agencies (ECAs) are government or semi-government institutions that offer financial support and risk protection to exporters, helping facilitate international trade.

Various trade finance instruments are available to support import and export operations. Here are a few types of trade finance products: 

• Documentary Collections

The exporter provides all the documents to their bank, which are then delivered to the importer's bank in order to clear the payment.

• Factoring

A type of receivable purchase where a business sells its outstanding invoices to a factor at a discount in exchange for cash. A trade finance loan can be beneficial when you have extended credit terms. 

• Import Financing

A short-term loan that provides importer funds for the payment of goods, which can be later paid after the sale of the product.

• Export Finance

This allows the exporter credit to purchase the supplies and the cost of loading the goods for transit.

• Letters of Credit

A contract that guarantees payment to the exporter by the importer’s bank after the reception of the goods.

• Trade Credit Insurance

An agreement that covers the loss of the exporter in case of non-payment by the importer.

• Supply Chain Finance

This includes solutions to reduce payment delays to maintain cash flow and reduce financial stress.

A trade finance loan is more than a regular business loan. It provides specialised support for both importers and exporters through tailored financial solutions. The following are the benefits of opting for this facility for both parties:

• Risk Reduction and Growth

Trade finance protects your business from delayed payments, insolvency, and political risks. A stable supply chain helps you pursue new growth opportunities.

• Trusted Partnerships

It ensures secure transactions and builds trust between importers and exporters. This trust supports long-term relationships with suppliers and customers.

• Cash Flow and Efficiency

It gives you access to working capital and liquidity. This improves cash flow, lowers costs, and boosts efficiency.

• Access to New Markets

Trade finance reduces uncertainty in global trade. You can enter new markets confidently and grow your customer base.

• Higher Sales Potential

Offering flexible payment terms enhances the appeal of your products. This can lead to increased sales and help you gain a larger share of the market.

To qualify for a trade finance loan, you, as a business owner, must meet specific prerequisites set by banks and financial institutions. While specific criteria may vary by lender, here are some common general requirements:

• Trade History: A proven track record in imports or exports

• Financial Strength: Good balance sheets, steady cash flow, and strong credit ratings

• Reputation: Trusted relationships and credibility in the market

• Secure Contracts: Confirmed orders, letters of intent, or sales agreements

• Creditworthiness: Stable working capital and timely debt repayment

• Collateral: Assets like property, inventory, or securities as security

• Proper Documentation: Licenses, tax records, and trade-related paperwork

Lenders may have specific documentation requirements to validate your business. Submitting complete and accurate documents is essential, as missing or incorrect information can lead to delays or rejection of your application.

Most lenders will ask you to submit the following:

• Duly filled Account Opening Form

• PAN of the entity (Proprietor's PAN for Sole Proprietorships)

• KYC documents as per entity type

• Address proof in the entity’s name (if different from entity proof)

• Official Valid Documents of Authorised Signatories and Beneficial Owners

• Import Export Certificate (IEC), if applicable

• Declaration of Beneficial Ownership

• Initial funding cheque (as per account variant)

• Credit facility declaration

Irrespective of your business size, you can opt for a trade finance loan. This allows you to participate in import and export activities to expand your business. Here are some professions that qualify for this facility: 

• Manufacturers 

• Importers 

• Exporters

• Small and medium-sized enterprises 

• Automobile companies 

The key providers of this facility include:

• Banks

• Other financial institutions

• Invoice financing companies

• Trade finance houses

To apply, you must meet the following eligibility criteria: 

• An established trade history

• Trusted relationship in the market

• Confirmed order and good reputation

• Collateral

Applying for trade finance involves several steps that help lenders assess your business’s creditworthiness and the viability of the transaction. The process is thorough, as it requires detailed documentation and evaluation before approval. Here is a step-by-step guide to help you understand how to apply for trade finance:

1. Submit the Application

The process begins when your business submits a credit application to the lender. You will be required to provide detailed information about your company, directors, financial history, trade cycles, and the purpose of the loan.

2. Prepare Required Documentation

Lenders typically ask for 2–5 years of financial statements, budgets, forecasts, purchase orders, and invoices. Additional documents may include director CVs, bank references, asset and liability details, and a business plan that outlines your goals, offerings, market, and financial outlook.

3. Undergo Credit Evaluation

The lender will perform a comprehensive credit assessment based on your financials, business plan, collateral, and trading history. A credit score will be assigned, factoring in market risks, management quality, and probability of default.

4. Negotiate Terms

If the application meets the lender’s criteria, you can negotiate terms such as interest rates, fees, and charges. Being well-prepared with an understanding of fee structures and transaction risks can help secure more favourable conditions.

5. Receive Approval

Once negotiations are complete, the application is reviewed by the credit committee. If approved, legal teams finalise documentation and collateral agreements. A senior director signs off on the contract, which defines the terms, obligations, and dispute clauses of the finance arrangement.

Ensure that you repay the loan on time, including interest, as per the agreed terms. This helps protect your business’s credit rating and establishes a good relationship with the lender. A good repayment record also improves your chances of securing higher funding in the future.

You can apply for a trade finance on Bajaj Markets by following these steps:

1. Click on ‘Apply For Loan’ on this page

2. Fill in the application form by choosing your profession, mobile number and pincode

3. Enter the OTP sent on your registered mobile number for verification

4. Accept the terms and conditions after reading and click on ‘CHECK YOUR OFFER’

5. The representative will get in touch with you for further steps

Reference of all T&C necessarily refers to the terms of the Partners as regards to pre-approved offers and loan processing time amongst other conditions.