Generally, trade finance is different type of method importers and exporters of the commodities and goods use to pump finance their business. The existence of the trade finance is from many thousand years before and Silk route, China and Mesopotamia civilization were the best examples for this type of business. These trading finance services had been had been initiated in America much before the arrival of Europeans settled in America.
At the present time trade finance companies are doing massive business which will be multi-billion in figures. The trading in the world has increased, to continue the transactions, there is a heavy demand of banks and financiers are needed to lend the money in order to purchase and sale of the goods and commodities around the globe.
There is a common question arrive into the mind that, how is trade finance structured commodity finance is useful? For instance, suppose you are a trader in coffee beans in Brazil. Your job is buying beans from local market and exporting them different countries. You need finance assistance to purchase the beans from the local traders before exporting. So in this scenario, who will support the bank and if the traders are traditional lenders, they only lend you against your balance sheet.
In these type of issues, trade and structured trade is very useful. In this way your business can grow and can be developed to a new level. The services of a specialist trade finance department will frame all the financial structures can be mold according to your requirement using the collateral of the trading goods than your own balance sheet.
Goods have an own value. For instance, coffee beans are thousands of dollars per ton and if there is a pile of beans will be stocked at any warehouse or any ship, it worth a lot of money. In this scenario, bank will lend against total value of beans minus the money taken for the price of other risks. This procedure is applicable for every commodity or the good which has been kept for trade. A bank will sanction a loan as the collateral adds up and it can be as long as the bank is comfortable with that way the deal is structured between the buyer and the seller. If there is something going wrong according to the bank or any violence to the deal, then the bank is able to take the possession of the goods and can sell them in open market to release money or to repay any outstanding loan amount.
In this way trade finance companies are working and providing a great assistance to the traders to make a position in international market.
