January 24th, 2018 | Updated on June 17th, 2020
While it has never been easier to launch an SME in the digital age, it’s fair to say that enjoying sustained success is arguably more challenging than ever.
After all, it’s estimated that just four in 10 small businesses will survive years of trading, as they succumb to universal issues such as funding, demand and an inability to manage working capital.
With this in mind, SMEs must be creative if their to survive the test of time. Embracing trade finance can be an excellent and innovative way of sustaining organic growth, for example, and in this post we’ll offer some advice on how to successfully leverage this.
1. Understand the Mechanics of Trade Finance
They say that knowledge is power, but in the case of trade finance we reckon that understanding is arguably more important.
In simple terms, trade finance (which is occasionally referred to as purchase order finance) enables SMEs to borrow money against the value of a confirmed order in order to secure, store and ultimately ship their stock. Through this short-term borrowing, method, it’s possible to cover all supplier payments and logistical costs and deliver even large-scale orders to customers.
The amount borrowed can then be repaid once your customer has settled their bill, completing a short-term cycle of debt that does not encumber the business. It’s also estimated that around 80% to 90% of all global trade relies on this method of financing, while it’s clearly the lifeblood of SMEs in certain markets.
2. Use Comparison Sites to Secure the Best Deal
When looking to secure a trade finance agreement, it’s also important that you strike the best possible deal with a provider.
This is where outlets such as Touch Financial can be worth their weight in gold, as they help customers to compare available prices and connect them with the best, real-time deals in the marketplace. This can save time and money for your business, while helping you to leverage any competitive advantage that you’re able to access through trade finance.
This can also help you to identify lenders who may specialise in your industry, which can minimise risk and enable you to achieve more favourable terms.
3. Focus on your Performance and Secure a Letter of Credit
While trade finance may be more accessible than other financial products, this does not mean that you should not take steps to enhance your prospects in the eyes of borrowers.
Boasting an outstanding track record as a business will stand you in good stead, for example, particularly when it comes to fulfilling orders, financial reporting and generating sustainable profits. Businesses that have traded in a stable manner for two years or more will generally access more favourable deals, so this is important to bear in mind before applying.
We’d also recommend that you secure a letter of credit when you agree an order with a client. This universally-governed instrument is widely accepted by lenders, while it helps to minimise risk and encourages firms to offer more favourable terms to applicants.