What are the terms of a trade finance arrangement?
Trade finance loan structures are usually six months or less and utilize the buyer’s or the buyer’s bank’s promise to pay, credit insurance to cover foreign receivables or credit guarantees from the Ex-Im Bank. These are means of collateral or guarantee that the loan used to fund the export transaction will be repaid. The Ex-Im bank provides participating U.S. financial institutions with different types of credit guarantees, helping shift the risk of nonpayment away from the foreign or domestic buyer to the U.S. government instead. Trade finance loans are short-term ‘bridges’ to help U.S. companies do business overseas with minimal risk. Why should an owner utilize trade finance rather than commercial finance? Commercial loan structures are used to fund the day-to-day operations of a company or to purchase equipment and property. They are longer-term and require a lot of collateral. The problem is, some companies that do business overseas have significant foreign accounts receivables,
