How to access trade finance as an SME

Small to medium-sized enterprises (SMEs) are often seen as the backbone of an economy, not only in the US, Europe and Australia but also in developing countries. They contribute in large amounts to employment, innovation and taxable export income. In a globalized world, SMEs have to tackle the issue of exporting their goods or services into other countries and therefore deal with the topic of trade finance – but often struggle with this, hindering creativity, scalability, long-term growth as well as access to new markets. This nowadays also applies to a larger number of born-global start-ups that aim to take on new markets efficiently and rapidly.

In particular, exporting goods promptly is crucial for SME’s in order to grow their company. Reports[1] suggest that non-existing solutions for this are becoming a strategic problem. This is often caused due to established financial institutions requiring multiple years of financial records to support proposals put forth by SME’s. Banks tend to evaluate company risks based on empiric credit scoring and historic accounting numbers, mostly without an evaluation of the potential upside of proposals, therefore acting highly risk-adverse. In particular, the impact of this was seen during the last financial crises where access to loans and traditional bank financing for SMEs became highly difficult. Additionally, the level of complexity needed to independently access international trade requires an infrastructure that can deal with a high level of cross-border regulations as well as compliance guidelines that can differ from country to country. Establishing a presence in a foreign market involves high upfront costs arising from activities such as targeting new foreign customers, the creation of distribution networks as well as compliance with foreign product standards and norms. All of this makes it difficult for SMEs to establish themselves globally.

Often SMEs that intend to access foreign markets need to find trade finance providers that offer them solutions. To solve this dilemma, a deeper bilateral understanding of the involved parties is necessary in order to establish possibilities for cooperation and an improvement of the situation. SME’s must focus on finding independent trade finance providers that are willing to listen and understand a proposal from beginning to end, something a traditional bank will not do. Trade finance providers work in unison with businesses to offer solutions that fit the parameters put forth by either party.

In order to illustrate alternatives, here’s a quick overview:

1. Accounts receivable financing: Foreign based buyers that acquire US products often demand longer payment terms and sometimes payment after the normal 90-day timeframe. If this is happening, companies can run into liquidity problems. This can be solved by so called factoring firms – companies that specialize on the acquisition of accounts receivables and therefore take ownership and responsibility in order to secure the payment from foreign firms.
2. Foreign buyer finance: Securing trade finance for large-scale projects can be a big problem. In particular BRIC based companies that aim to buy products or services from the US face hurdles to obtain credit or other medium or long-term financing that is required in securing credit to finance such projects. The solutions are financial institutions that support explicitly these purchases and products by foreign buyers with a good credit score.
3. Import and pre-export financing: A lender normally requires the funds in order to manufacture products. An alternative for SMEs is a pre-export financing. This takes place when a financial institution advances funding to a borrower based on proven orders from buyers.

BeFlexi is a world leader in logistics and liquid transportation with the use of flexitanks, but most importantly has become the only full service logistic company. By understanding the need for a full solution, BeFlexi helps businesses prosper domestically and internationally without having established a physical presence. Offering not only the transportation but also the financial support to a business allows for SME’s to expedite their growth and quickly become global players. The financial solutions put in place allow for businesses to lower their risk, free up cash flow, and focus on their core trade.

[1] Trade Finance for SMEs, Road Map for Implementing the Strategy, International Trade Center, Switzerland