07 09 2022

What Is Trade Finance & How It Works: Everything You need To Know

Our partner business, 3S Capital Partners, recently announced a new trade finance offering. It has been in the works for over a year and is backed by professionals with decades of investment management and banking experience.
What is Trade Finance & How a Trade Finance Fund Works

Trade finance is an attractive option for investors who are looking for new opportunities and for businesses seeking flexible funding options.  
 
However, there are still many people and businesses who don’t understand the process and benefits of utilizing trade finance. 

Our article will teach you:

  • What trade finance is 

  • The difference between borrowers and investors 

  • The 3S Capital Partners trade finance offering 

  • How it works 

  • Different types of trade finance 

  • Why you should consider trade finance 

  • The benefits of trade finance 

What is trade finance?

Trade finance has a mix of definitions online, but the simplest way to explain it is that it signifies financing for trade. This is when a 3rd party provides the funds for businesses to manufacture and ship their goods before a payment has been received from the buyer. This helps all involved parties manage risk by having documented proof of distribution and payment.  

Why do people need trade finance?

Trade finance bridges the funding gap between paying your suppliers and receiving customer payments. It offers the opportunity to individuals to invest in this process and receive an excellent risk-return profile. 
 
Many companies who trade internationally benefit from trade finance by offering them either the funds and instruments to grow their businesses, or the opportunity to invest and profit as a trade finance investor.  
 
It makes it easier for global businesses to move goods internationally with minimal risk. Having a third-party managing the transactions reduces payment and supply risks. 
 
Trade finance is traditionally utilized by two parties: borrowers and investors. Borrowers and investors can come from many different industries and places, and both parties benefit in different ways.

What is trade finance for borrowers?

Borrowers can come from a variety of industries, including manufacturers, importers, producers, exporters, and traders.  
 
Trade finance is an excellent option for companies that need support on their cash flow. A borrower, for example, may need a line of funds while waiting to be paid by their customers. A trade finance fund can offer that support and allow the business to continue trading and selling their products with the promise of payment. 
 
This gives borrowers the confidence to grow their business, without having to worry about a lack of available funds. A repayment scheme is agreed between both financer and borrowers, allowing businesses to instantly improve their transaction flow, inventory, and stock capabilities 
 
3S Capital offers international trade financing solutions built for fast-growing businesses and startups looking to scale. With the 3S Capital uncommitted line of credit, your business benefits from the cash flow support, and higher economies of scale and borrow between 0.5m and 10m in multiple currencies. 

What is trade finance for investors?

Trade finance investors can be anyone from suppliers, buyers, banks, and separate individuals looking to invest. 
 
Investors are always looking for a strong return on investment and to diversify their portfolio, as securely as possible. The tried and tested infrastructure of trade finance offers investors a strong risk-return percentage per annum, without compromising on attractive offerings.  
 
Investors can diversify their portfolios, and secure global deals with commodity traders, cross-border trading companies, import-export companies, manufacturers, and more. Another benefit is often the return of investment percentage.  
 
With a minimum investment term of 6 months, and a risk-return profile of up to 7% per annum. 3S Capital Partners offers you the opportunity to become a key part of the global financial supply chain and help empower businesses when they need it most.  

What types of trade finance are there?

Borrowers and investors use trade finance as it provides a variety of services they benefit from. Here’s a list of different types of trade finance service examples:  

  • Letters of credit: When a bank makes a written promise to the exporter that it will immediately process the payment once the transaction has been completed.  

  • Guarantee from the bank: This is where a bank acts as a guarantor in the case that the importer or exporter cannot fulfil the contracted agreement. The bank would then pay the beneficiary. 

  • Factoring: When exporters sell invoices to a trade financer at a discount. The trade financer will then sell it to the importer, who pays full price. 

  • Forfaiting: An exporter sells all their accounts to the forfeiter for cash, at a discount. 

  • Insurance: For the delivery and shipping of goods. 

  • Lending: Lines of credit lending can be issued by providers like banks, to support importers and exporters. 

  • Export credit: Export credit can be supplied to the exporters as working capital. 

Does 3S Money offer trade finance?

3S Money offers business accounts to global companies who need access to multiple currencies, and our partner company, 3S Capital Partners BV, offers trade finance. 
 
Our 3S Capital team have decades of investment management and corporate banking experience and offer enhanced returns, protected by secured lending. 
 
The 3S Capital global trade finance fund provides options for both investors and borrowers
 
Borrowers will benefit from higher economies of scale and can borrow between 0.5m and 10m in USD/EUR, with our uncommitted line of credit.

How does 3S Capital trade finance work for borrowers?

  • Borrow between 0.5m and 10m* in USD/EUR. An upfront fee of 0.3% may apply. 

  • An interest rate of 7% - 15% p.a., dependent on currency and risk profile. 

  • The trade finance fund shares its mission with 3S Money: we enable growing businesses to trade globally and pay locally. 

How does 3S Capital trade finance work for investors?

  • Invest a minimum of EUR 100,000* 

  • Minimum investment term of 6 months 

  • 60 days’ notice is required for redemption 

  • Subscription fee of 0.5% of the subscription amount 

  • Redemption fee of 0.25% of the redemption amount 

  • Management fee of 15% of the increase in the NAV (with no minimum fee) 

  • No hidden fees 

Investors may enter or exit the fund at the NAV at the time of their choosing** 
 
Investors are offered an excellent risk-return profile of up to 7% per annum*, through exposure to competently sourced and structured global trade finance opportunities.  
 
* - net of subscription fee 
** - Subject to the Terms and Conditions of the fund 
 
*Capital at Risk 
The value of investments, and the income or capital entitlement which may derive from them, if any, may go down as well as up and is not guaranteed; therefore, investors may not get back the amount originally invested. 
 
Past performance is not a guide to future performance, nor a reliable indicator of future results or performance. 
 
You should not invest in any financial product unless you understand its nature and the extent of your exposure to risk. You should also be satisfied that it is suitable for you in relation to your circumstances and financial position. 
 

What are the benefits of trade finance?

Let’s round up the benefits mentioned in this article: 

  • Security: For investors, the infrastructure offered to invest funds is safe and secure. For borrowers, you have the safety of accepting funds from fully vetted investors, and the payments are documented and managed by a third-party expert. 

  • Flexibility: For borrowers, you have the breathing room and flexibility of funding to keep your business going and growing as you wait for customer payments.  

  • Transaction flow: For the borrowers, your funds are available almost immediately. 

  • Portfolio diversity: Investors gain access to new industries and become part of a global supply chain. 

 

3S Capital trade finance legal structure

3S Global Trade Finance Fund is a mutual fund administered by 3S Capital Partners B.V., both existing under the laws of the Netherlands and registered as the investment fund and the exempt manager with the Dutch financial regulator AFM. 3S Capital Partners B.V. is 100% owned by 3S Money, authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011. 

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