Applications for Trade Finance must be detailed and convincing to overcome tight credit conditions

With credit conditions still tight, applicants should ensure their administration and documentation is up to scratch to ensure applications for such credit are considered seriously and given appropriate consideration. This is the view of leading Trade Finance specialists, the Chester Finance Group.

Chester Finance Group executive Andy Bryant says that trade finance applicants should ensure all relevant information is up to date and readily available.

“Applications for trade finance can be delayed, or even rejected, due to incorrect or incomplete information being supplied to the finance provider. Importers and exporters are the most common users of trade finance products and with the economy gearing up for recovery in 2010, these companies should present the necessary paperwork to ensure that the application process be as smooth and quick as possible.”

“Applicants should be able to produce their latest annual financial statements, audited if they are a company together with current management accounts, debtors, creditors, stock lists as well as recent bank statements,” says Bryant. 

“Trade financiers will also ask prospective borrowers about the future of their operations and may want sight of financial forecasts and to know about business growth and the impact on margins and overheads. These projections should be realistic and contain the necessary assumptions supporting them”

Bryant advises that other information may include:

·      The identification of the various risks faced such as competition, exchange rates, product obsolescence, or seasonality, and how these are mitigated.  

·      Financiers would also want to look backwards, and understand the history of the business and its evolution over time. 

·      A site visit to get a feel for the operations.

·      CVs on directors and management, such as who are they, what have they done, their track records, ages etc.

·      The personal financial positions of the shareholders will in most circumstances need to be declared as part of the trade finance application.

·      Details on the existing debt of the business and the security provided in respect of this debt.

Bryant emphasises that trade finance would usually be required to finance working capital such as inventories and would only in rare circumstances be used to finance operational expenditures.

“Some businesses do not understand the role of trade finance and sometimes want to use this form of facility as start-up/seed capital or for the medium term financing of fixed assets. Trade finance is designed as a short-term facility and applicants should understand the working capital cycle of their business and how trade finance fits into such a cycle.”

Bryant also suggests that trade finance is becoming more and more a  leading funding mechanism rather than something to turn to if the commercial banks refuse a traditional finance application. He also strongly recommends establishing good relationships not only with your trade finance provider, but also the commercial banker as these sources of funding should work together to provide the business with a blended funding solution. “

He concludes that trade finance is a useful form of financing for manufacturing, trading, wholesale distribution and import/export operations.