5 Tips for Small Business Leaders Considering Trade Finance Options

Trading on an international level is a good way to grow your small business and achieve global success, but there is no denying that international trade requires substantial working capital. While modern technology and global supply chains make it easier than ever before to trade with other businesses or customers on an international level, sometimes you can lack the funds necessary to buy goods from international suppliers. When this happens, you need to explore trade finance options, which can help you get the financial resources you need to keep your operation running smoothly.

If you want to plan ahead and achieve success in 2022, then you need to ensure the right cash flow and obtain decent buying capital to purchase goods from your suppliers regularly. Trade finance can help you achieve this by providing you with the capital, but there are some key considerations you need to keep in mind. Here are the most important tips all small business owners should know when considering trade finance options.

Know the long-term potential of your trades

First things first, you need to analyze the long-term potential of your investments and trades before you start looking into trade finance and different lenders. It’s important to make sure that what you’re getting financing for will be able to pay off the capital with interest and make you money in a specified time period. In other words, the trade you’re getting financing for needs to produce a positive ROI.

This is the time to talk to your analysts and sales experts, partners, vendors, and your supply chain partners as well in hopes of getting a better deal on the goods. Keep in mind that this step is not just important for your company’s financial security, but also to convince the lenders that you can pay off the interest within the specified timeframe. 

Photo by Omid Armin on Unsplash

Foreign currency can be a liability

The global currency market is always changing due to socio-economic and many other trends, and you can expect different countries to experience different currency fluctuations. Any currency instability can harm your operation and impact your bottom line, so you have to make sure that the currencies you’re working with are secure, meaning that the regions you’re trading in are stable.

That said, you can’t affect the currency yourself, and you can’t avoid working in some markets on the off chance that a currency will experience a downturn – because doing that would hinder your business growth as well. That’s why it’s important that you work with a financing institution that supports the currencies you’re using in different markets. What’s more, make sure to negotiate a fixed exchange rate for all the currencies you’re using, which will protect you against any currency fluctuations. It also means that you won’t benefit when a currency changes value, but it provides you with some much-needed security.

Research the companies offering trade finance

Once you have the necessary projections in place and understand the different currency trends, it’s time to start looking into trade finance options for your mid and long-term needs. There are many financing institutions out there on the global market that offer trade finance, and each offers its own perks, while some may come with distinct disadvantages. This is why it’s important to research your options thoroughly and look for lenders that can accommodate your needs.

Keep in mind that different lenders will offer different types of trade finance. Some will offer only invoice financing while others will offer debt financing or equity. Then there are some lenders with a comprehensive suite of financing options that will support your growth over the long term

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Look for a tailored plan

When you start narrowing down your search for the ideal lender, it’s important to consider the level of customization they offer. Ideally, your financing institution will be able to tailor a plan just for you that addresses your unique pain points while keeping your budget capabilities in mind. 

If you are looking to grow your startup consistently and safely, you will need to take these precautions and choose a tailored financing plan that will help minimize extraneous financial expenditure while maximizing savings. Make sure to talk with potential lenders to see what kind of personalization and customization they offer in their plans. 

Get your legal and finance teams involved 

Finally, while there are many ways to do all of this yourself, it’s still important to get your legal and financial teams involved when you’re looking at the contract. These experts will be able to read the fine print and use the best business tech at their disposal to ensure that the contract benefits you as much as possible and that the lender cannot hinder your operation in any way. What’s more, they will tell you whether or not it is financially viable for you to enter the contract as is, or if you need to make some changes before signing.

Over to you

Trade finance is one of the best ways for small business owners to gather the capital they need to succeed in global commerce, but you need to keep some key considerations in mind before you apply for financing. Make sure to use these tips to find the best lender for your needs and get a financing deal that will ensure your company grows in the international marketplace.

Mike Johnston
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