| Trade finance is the method importers and exporters | | | | your own balance sheet or other assets. |
| of commodities and goods use to finance their | | | | What is the basis of trade finance and structured |
| business. Basically, trade finance has been in existence | | | | trade finance? |
| for many thousands of years - and one can trace | | | | Goods and commodities have an underlying value of |
| the roots of trade finance and structured trade | | | | their own. For example, if cocoa beans are worth |
| finance right back to the early days of China and the | | | | many hundreds or even thousands of dollars per |
| silk route, Mesopotamia and Europe. Trade Finance | | | | tonne, then once a big pile of beans is accumulated in |
| was around long before Europeans settled in America | | | | one place; in a warehouse or on a ship, it is worth a |
| and long before the world's stock markets were | | | | lot of money. A bank may lend money against the |
| born! | | | | total value of the beans, minus some amount to take |
| Today, trade finance is a massive, multi-billion dollar | | | | account of price and other risks |
| business. As the world trades more and more goods | | | | . |
| and commodities are bought and sold, so more and | | | | It is the same for every commodity or trade good |
| more banks and financiers are needed to lend money | | | | which is resalable. A bank will make a loan as long as |
| to finance the purchase and sale of these goods and | | | | the collateral "adds up" and as long as the bank is |
| commodities - right across the global supply chain. | | | | comfortable with the way the deal is structured |
| How is trade finance and structured trade finance | | | | between both the buyer and the seller. Of key |
| useful? | | | | importance is that if something goes wrong the bank |
| Take an example: imagine you are a trader in cocoa | | | | is able to take possession of the commodities or |
| beans in Cote d'Ivoire, buying beans locally and selling | | | | goods and sell them to realise monies to repay any |
| them to foreign buyers. To make your purchases, | | | | loan amounts outstanding. |
| you will need to have money to buy the cocoa | | | | Basically, when we talk of structured trade finance |
| up-country in Africa, prior to their export. Where will | | | | we are talking of deals whereby complex |
| you find money to make these purchases? And | | | | arrangements are put in place to ensure a bank can |
| supposing you are the international buyer; the | | | | take possession and sell the underlying capital used |
| shipper, purchasing from cocoa traders all over West | | | | for the loan; in this example, the goods and |
| Africa - how will you finance your transactions, which | | | | commodities themselves. |
| at any one time may exceed your cash reserves? | | | | Is trade finance complicated? |
| What might be supported by your bank who, if they | | | | No. It is a simple business although the structures |
| are traditional lenders, will only lend against your | | | | used in trade finance in more complex deals require a |
| balance sheet? | | | | lot of work for all of the parties involved. This is why |
| This is where trade finance and structured trade | | | | the total loan amount of a structured trade finance |
| finance is useful - your business can grow and | | | | loans must be high enough to warrant the |
| develop if you use the services of a specialist trade | | | | involvement of highly-paid bankers, lawyers and other |
| finance department who will structure trade finance | | | | advisers. |
| structures can be tailored to your needs, using the | | | | Where can I find out more about trade finance and |
| collateral of the goods you are trading, rather than | | | | structured trade finance? |