How Trade Finance Aids Local Businesses in Global Expansion

Finding a brilliant concept is only half the battle, whether you’re starting a business or already have one; the other half is finding the money to make it happen.

How Trade Finance Aids Local Businesses in Global Expansion

However, this does not necessarily indicate that your entrepreneurial goal is over. By using trade financing, you can fund your company without taking out loans or spending all of your savings.

Around 80 to 90 percent of global trade is financed by trade. In fact, by supporting the resuscitation of the intricate networks and connections involved in the trade finance arena, the World Trade Organization (WTO) hopes to keep money flowing for trade.
But what is trade finance, and how can you use it to expand and maintain your company?

Why Do We Finance Trade?

How Trade Finance Aids Local Businesses in Global Expansion

Trade financing is a collection of accessible financial tools or goods that enables you to support your company without taking out loans and promotes global trade.

Due to its short processing times, adaptable payback plans, unsecured trade facilities, and other advantages, it makes it simpler and practicable for importers and exporters to transact.

With trade finance, a bank helps you and the seller conduct local or international trade transactions. No money from the trade financing goes to you; in certain situations, you may receive it in the form of a trade loan, while in other cases, you may receive it in the form of undertakings and promissory notes to your seller.

The purpose of trade finance tools and products is to give importers and exporters of goods access to a variety of financial options that are appropriate for their circumstances. To facilitate smooth transactions, you can frequently employ a variety of trade finance tools, including: Bind or tender bonds: These are assurances provided by a bank to a tendering body that, should they win an advertised tender, you will accept and sign the contract. The procurement company will ascertain the required amount of the bond in this instance, and after viewing the tender, you will apply for the bond and complete the tendering procedure.

Co-op Bank provides suppliers doing business with the government, corporations, pastorals, and NGOs with unsecured bound bonds up to KSh 20 million at a rate of 1% to 2% of the tender price. Following application, these are processed in 30 minutes.

After you submit a competitive bid and are awarded the contract, a performance bond assures the contracting institution that your company will fulfill its end of the bargain. Usually 5 to 10 percent of the entire contract price, it is charged at 2.5 percent annually. For clients providing to local, state, or federal governments, as well as private groups, this bond is guaranteed by a cash cover or another suitable security.

Guarantees: These include advance payment (where supplies have been paid for in advance), credit (when purchasing products on credit from manufacturers), and security/immigration bank guarantees (for foreign nationals applying for work permits from the immigration department). Others include custom bonds and transit bonds, which are secured by cash, treasury bonds, property, and other appropriate security and provide the bank’s assurance to KRA that you will adhere to import requirements.

Letters of Credit: The bank issues these letters of undertaking when the buyer and seller need a third-party guarantee that payments will be made if all the necessary paperwork is on hand proving the products fit the requirements of the LoC. An authorized quality assurance organization inspects the items and certifies that they fulfill the standards before sending the letter to the bank of the customer providing the goods. By doing this, the quantity, quality, and delivery dates are all guaranteed. To be eligible for this instrument, you must submit proforma invoices, maritime insurance coverage, import declaration papers, and the required security.

Trade loans include pre-import, pre-shipment, pre-export, post-import, invoice discounting, LPO or contract finance, and others. While invoice discounting entails the bank paying the amount of the invoice to the client while anticipating payment from the buyer of the products or services, if you have an LPO from a respectable institution you may be eligible to acquire a loan to fund the contract for up to 60% of the LPO value for at least 4 months. The bank commits inflexibly to passing through the payments to the customer.

How to Get Your Business Trade Financed

How Trade Finance Aids Local Businesses in Global Expansion

The fact that small enterprises run out of money is one of the most frequent causes of failure. You need the extra funds—which trade financing offers—to invest in goods necessary for your company’s expansion if you want to survive and expand. You must present the following papers in order to use Co-op Bank’s trade financing solution: A properly completed application form; a tender advertisement; copies of the company’s directors’ IDs and KRA PIN certificates; and your company’s KRA PIN certificate, articles of association and memorandum of understanding, tax compliance certificate, and Certificate by Registrar of Companies (CR12).

Most recent bank statements (within the last 12 months) for any other bank accounts that your business or affiliated businesses have Business Transactions Using Trade Financing You’ll probably require a big investment to advance if you want to scale your business but lack the funds to accomplish your goal. The trade credit offered by Co-op Bank might help you grow your company. Additionally, they have improved branch-level access to the facility. To learn more about the trade financing options available to you, contact the trade finance officer at your nearby Co-op Bank branch today.