What is Trade Finance

Trade Finance – At the Forefront of Standard Accountant

Trade or export finance concerns domestic and international trade transactions – when a buyer purchases goods or services from a seller, the financial activities involved come under the umbrella term ‘trade finance’.

How can we help you with trade finance?

  • It’s our job to find you the best trade or structured finance deal from a wide range of lenders; banks and financial institutions, non-bank founders and alternative financiers who specialize in different finance sectors and markets.
  • We can help your business look at a range of funding options from a traditional overdraft or bank loan to a more innovative crowdfunding or alternative finance provision.
  • We work around the clock and get the relevant information in order to arrange your finance quickly while you focus on growing your business.
  • At Trade Finance Global, we can reach out to the key influencers and stakeholders at many different finance institutions to make sure your application gets through quickly and you can get funding as quickly as possible.

 

We’re 100% independent: working only for our businesses

Unlike some of our competitors, we are not tied to any lenders, we arrange a wealth of funding options for you so that you can choose the most appropriate solution.

What is a bank guarantee?

A bank guarantee is a ‘promise’ to underwrite or make payment to a third party, on certain terms. Often a third party will request a guarantee of payment upon dispatching its goods or services to another party, and a bank can guarantee this payment through a contractual obligation.

How can a bank guarantee help a business?

A bank guarantee is a generic term and there are several types of bank guarantee that can help businesses.
As an example, say a small client is dealing with a multinational company on a project, they might require some form of promise to have the relevant financial backing to complete that project. A bank would conduct due diligence on the small company and would act as a ‘guarantor’ to the multinational company; ensuring that the small client will complete the project on certain terms.

A bank guarantee is a ‘surety bond’ which is often addressed to a larger institution of corporate by which the bank pledges (and contractually agrees) to pay an agreed amount under stipulated conditions.

Benefits of bank guarantees

  • Allows SMEs the ability to reassure end parties the ability to contractually pay and finance larger projects
  • They offer financial credibility and creditworthiness which is backed by a bank
  • Bonds, Guarantees and Indemnities can normally be issued by Trade Finance Global’s partner network, located in most geographies and markets around the world, specialising in different sectors
  • Contracts and terms can be negotiated as guarantees can be paid or issued in different currencies

Types of bank guarantees

1. Tender Guarantee (or Bid Bond)

If you are pitching to a large company for a tender or project, the buyer might want a ‘tender guarantee’ to show that you’re a serious potential candidate.

2. Advance Payment Guarantee

If you ask the buyer for up front deposit or part payment (often 10-20% up front of the contract price), your buyer might want reassurance of repayment if the contract terms aren’t fulfilled, or they default. A bank can offer this as an Advance Payment Guarantee, which acts as an insurance to return the deposit if the contract defaults.

3. Performance Guarantee

When working to tight deadlines, the buyer might wish to charge penalty fees if the terms of the contract have not been fulfilled to the stated deadline. Often the guarantee might still be in place, but an additional fee (or compensation) would be assured by the bank in the case of delays or errors.

4. Standby Letters of Credit

Standby Letters of Credit are also guarantee obligations from a banks within the United States, which forbids financial institutions from assuming guarantees, so where a bank guarantee might not be issued, a SLC is used in its place.

Bank guarantee eligibility: What do applicants have to do?

Applicants need to demonstrate financial credit worthiness to their bank, or the bank offering to guarantee payment to another party in order to access a guarantee.

The bank would normally look at previous trading history, recent accounts, credit history and liquidity. The bank would normally need to know how long the bank guarantee is required for, the amount and currency, beneficiary details and any other conditions that might be required. A bank might ask for some security over the guarantee (e.g. liquid assets such as property or equipment it holds, and maybe a personal or directors guarantee).