A trade or import loan is a flexible, short-term borrowing facility that is linked to a specific import or export transactions. This type of loan is available for organisations regardless of the method they use to trade, whether it’s open account, collections or documentary credit basis. In general, trade and import loans help fund trade transactions throughout a firm’s trading cycle and effectively improve its cash flow.
Trade loans, in particular, work as fully revolving credit facilities that aids in funding a business between the time it has to pay for the purchased goods and the time when the firm receives the funds from the sale of those goods. Once an agreement is reached and put in place, the borrower party presents its drawdown documentation. These documents usually include invoices and transport documents. In addition, depending on the type of agreement, the lender may or may not have control over the transport documents.
A trade loan is an important and well-established trade finance technique. Wholesalers and manufacturers will benefit from this financing solution since it can be used for regular or one-off purchases of goods and raw materials.
Cost Of Trade Loans
There are three main costs that need to be considered with this type of loan.
In terms of arrangement fees, commitment or administration charges are payable to the lender to reserve the funds and cover opening costs. These fees will vary depending on the complexity of the business, its size, and risk
Lastly, trade loans are typically provided in conjunction with other trade products (such as documentary credits) and the cost of these needs have to be taken into account when considering affordability.
Offered Advantages
Below are the remarkable advantages that trade and import loans offer:
• It enables organisation to pay suppliers on time while receiving extended credit terms
• They are structured to suit a firm’s trading cycle
• It permits organisations to accept quick payment terms from suppliers, thereby enhancing their reputation
• If you require funding for your working capital needs, trade loans offer transaction-specific financing and may reduce their overall borrowing costs
Source:
http://www.business.hsbc.ae/en-gb/managing-risk/productfamily/imports provides more details about trade and import loans.