Priya PatelIn today’s economic landscape, there exists a substantial gap of approximately $2.5 trillion in trade finance, limiting businesses’ ability to flourish and capitalise on lucrative opportunities.
The lack of technical capacity among businesses to formulate and present compelling business plans and bankable proposals is a key challenge faced by borrowers in accessing trade finance.
High-interest rates further compound the obstacles faced by borrowers, as banks demand higher returns for higher-risk ventures.
Businesses seeking financial support must equip themselves with a comprehensive understanding of financial institutions, available products and services, credit policies, and procedures.
Understanding the inherent risks within business operations and implementing effective mitigation strategies is pivotal in negotiating favourable interest rates.
Determining the appropriate amount of financing is a critical facet of effective financial management. Underestimating or overestimating financial needs can have significant repercussions.
Before approaching financiers, businesses must carefully evaluate their actual financing needs.
Commodity trade finance essentially acts as the bridge between the procurement and sale of commodities.
Commodity finance, commodity trade finance, and structured trade finance are the main financing mechanisms in commodity trade.
Transactional trade finance involves a trader entering agreements with suppliers and buyers, seeking financing from their bank for purchases and sales.
Borrowing bases allow borrowers to raise finance against an aggregated pool of working capital assets, with periodic valuation setting maximum limits.
Working capital is obtained based on historical performance assessments, relying on audited financial statements.
Structured trade finance is utilised for situations where the financing tenor exceeds the standard asset conversion cycle, involving techniques like prepayments, tolling, and structured inventory products.
Navigating commodity trade finance requires borrowers to overcome obstacles, understand their financing needs, and grasp the intricacies of different financing mechanisms.
Clarity and strategic approaches are essential in securing the right financial support for business endeavours.
By addressing these challenges and adopting informed strategies, businesses can unlock the vast potential of commodity trade finance, bridging the global trade finance gap and fostering sustainable growth.
