What kind of trade finance lending do I need?
Financial resources are often tight, but there are many different resources MSMEs can explore for possible assistance. Below are some trade finance lenders to consider. For more information on trade finance, see the International Trade Centre’s (ITC) How to Access Trade Finance, which was developed for small exporters.
Who are the Trade Finance Lenders?
There are many types of trade finance lenders to consider. Below are brief descriptions of some of the most common:
- Corporate and Commercial Banks: These banks can provide a range of trade credit options to businesses, including accepting letters of credit or bills of exchange, or facilitating documentary collection (see guide on Trade Finance). Corporate banks typically service very large transactions, whereas commercial banks are more accessible to smaller traders.
- Alternative Finance Providers: These are non-bank lenders. These can include private investment, crowd-funding options, or other fintech that allows users to access financial services other than through a traditional bank. Alternative, or non-bank, finance can sometimes be more accessible to smaller traders because they do not face the same regulations as traditional banks, which can make traditional banks unwilling to spend the resources required to enable smaller transactions. Alternative finance providers based on new technologies may also be able to look at different types of collateral, which can open new areas of funding for some businesses (See guide on Supply Chain Finance).
- Development Finance Institutions (DFIs): These provide trade finance help to businesses to promote economic development. They might be funded by national governments and tend to be country or region-specific. DFIs usually operate as joint ventures in emerging markets and can provide insurance and guarantees against political and socio-economic risk to encourage investment. Like commercial banks, they may also provide standby letters of credit, invoice discounting facilities, and project finance from mid-term to long-term projects. Although DFIs may have an overall objective of increasing MSME finance, they often do not lend directly to businesses.
- Export Credit Agencies (ECAs): This financing is used to assist exporters through loans, loan guarantees, and insurance. The transactions supported by ECAs are capital intensive, such as machinery for large-scale projects. They have long-term financing maturities with attractive conditions, as they are usually provided through government financing facilities. ECAs may have minimum requirements, such as the size of a transaction, which could exclude certain smaller traders.
What do I need to access this finance?
Lenders have different requirements and criteria to access their financing options based on the level of risk, interest rate, and repayment conditions. If you are interested in accessing trade finance, first understand your financial needs and then reach out to your targeted lenders.
Where can I learn more?
- The ITC’s SME Trade Academy offers a dedicated Export Finance and Payments Course.
- Trade Finance Explained, an SME Guide for Importers and Exporters, is a publication co-authored by Trade Finance Global, the ITC, the Federation of Small Businesses (FSB), the Institute of Export & International Trade (IOE&IT), the British Exporters Association (BExA), the Forum of Private Business (FPB), and the International Finance Corporation (IFC).