Niche financiers help smaller firms access trade funds
The term “trade finance” is used among many financiers and the users thereof, however there is much confusion about what trade finance actually is.
“In the traditional sense, among major banks, it simply means financing for trade and it concerns both domestic and international trade transactions,” says Michael Latchigadu, head of trade and debtor finance at Sasfin. “Banks generally facilitate the transaction between buyer and seller by providing letters of credit or documentary collection.
“For established companies, such as large corporates and listed entities, getting access to these services from a bank is relatively easy, but what about a growing business whose imports or local purchases are growing faster than the business can afford to fund?
“In this situation, the business referred to above does not just need facilitation by means of letters of credit or documentary support; it requires funding for the underlying trade transaction,” says Latchigadu.
However, he says the bigger commercial banks are generally hesitant to fund these transactions unless the business has a substantial balance sheet or tangible collateral. Importers of products and raw materials therefore turn to niche financiers and smaller banks, which provide a trade finance facility that allows them to pay their foreign or local suppliers as and when required.
Latchigadu says the facility generally also caters for letters of credit.
“The niche financier would secure the trade finance facility by means of personal suretyships from the shareholders and a general notarial bond over the movable assets of the company. Historically, this was generally the way a nonlisted company would access trade finance, but this has recently changed.
“Companies can now access a trade finance facility that allows them to pay their foreign suppliers or local suppliers without necessarily providing the financier with suretyships and general notarial bonds. In fact, with almost no collateral, a company can now get access to trade finance.
“There are obviously terms and conditions with this sort of offering. However, this is definitely something that hasn’t been offered before and is surely set to disrupt the trade finance market in SA,” says Latchigadu.