All funding products

Trade finance.

Trade finance is the umbrella term for the products that fund the gap between paying a supplier for goods and being paid by your customer when those goods are sold. It covers letters of credit, import loans, documentary collections, and back-to-back facilities. The product is not glamorous, but it's what makes most UK importing and exporting work — without it, supplier prepayments would crush working capital.

At a glance

Best for: Importers and exporters with confirmed orders, predictable trade cycles, and identifiable end customers
Speed to fund: 4–10 weeks to set up; 2–10 working days per transaction once live
Indicative cost: 3.5%–9% over base rate for utilisation; 1%–3% per LC issued
Typical user: UK importers, exporters, and traders with £500k–£100m turnover, often supported by invoice finance on the receivables side
Watch out for: Documentary discrepancies, country and FX risk, slow LC processing in some jurisdictions, double counting against existing facilities

The basics

What is trade finance?

The defining feature is that funding follows a specific transaction — a purchase order, a shipment, a confirmed sale — rather than the borrower's general credit. The lender is usually willing to underwrite a specific deal at a price they wouldn't extend as a clean working capital line.

The most common UK trade finance products:

Letter of credit (LC). A bank guarantees payment to a foreign supplier on production of specified shipping documents. The supplier ships with confidence; the buyer doesn't pay until the goods are documented as dispatched. Standard for higher-risk countries or new supplier relationships.
Import loan / trust receipt. The bank pays the supplier on shipment; the borrower repays once they've sold the goods, typically 60–120 days later.
Documentary collection. A cheaper alternative to an LC where the bank handles document exchange but doesn't guarantee payment.
Back-to-back finance. The same facility funds both the purchase and the onward sale — common in commodity and traded goods businesses.
Export credit and bonds. Supports the seller side — performance bonds, advance payment guarantees, export factoring. UK Export Finance plays a major role here.

Fit

When it works well.

Trade finance fits businesses with predictable, document-able transactions:

Importing finished goods or raw materials on terms requiring upfront payment or LC.
Exporting to overseas buyers where you need payment certainty before shipping.
Trading commodities or branded goods with short, defined cycles.
Funding a specific large order where general working capital lines are stretched.
Cross-border trade with tighter compliance demands — sanctions, KYC, end-use checks — where a bank's documentary process adds value beyond the funding itself.

Trade finance is often layered with invoice finance: the trade facility funds the inbound side; invoice finance funds the receivables created when goods are sold on. Used together, the two products cover the full working capital cycle from supplier prepayment to customer settlement.

The honest part

When it's a bad idea.

Trade finance is high-quality funding when used correctly, but routinely misapplied:

You don't have a specific transaction. Trade finance is not a general working capital line. Borrowers who try to use it that way end up with idle commitment fees and limited usefulness.
Your customers are unreliable. If onward sales aren't certain, the import loan turns into stuck stock — and stuck stock loans don't repay themselves.
Documentation is your weak point. Trade finance lives and dies by paperwork. Discrepancies in shipping documents, GRNs, or import paperwork can delay or kill payment under an LC. Businesses without disciplined trade ops find the product painful.
You're trying to extend a structurally over-leveraged business. Adding trade lines to a balance sheet already overloaded with debt rarely ends well.
Country or currency risk is unmanaged. Trade finance exposes the borrower to FX moves, country-level disruptions, and supplier failures. Hedging and risk management are not optional.

Cost

Real costs.

Component	Typical range
Import loan margin	3.5%–7% over base rate (banks); 6%–9% over base (specialist lenders)
Letter of credit issuance fee	0.75%–1.5% per quarter, or 1%–3% per LC
LC negotiation / advising fees	£100–£500 per document set
Documentary collection fee	£75–£200 per transaction
Arrangement / facility fee	1%–2% of facility limit
Commitment fee (on undrawn portion)	0.25%–1% per annum

Worked example

£500,000 import loan facility, fully drawn for 90 days, at 4% over base (8.5% all-in):

Interest cost: £10,479.
Plus 1.5% arrangement fee: £7,500.
Plus 1% LC issuance: £5,000.
Total cost of one cycle: £22,979.

If the goods are sold on at a 25% gross margin (£625,000 sale value, £125,000 gross profit), the trade finance cost is around 18% of gross margin — manageable for a profitable trader, ruinous for one operating on thin margins.

Operational reality

Speed, complexity, certainty, flexibility.

Speed

Slow to set up. Banks typically take 4–10 weeks to credit-approve and document a new trade facility, longer for complex cross-border lines. Once live, individual transactions move quickly — LC issuance in 1–3 days, import loan utilisation same-day on shipping documents.

Complexity

High. Trade finance is the most documentation-heavy SME funding product. Borrowers need disciplined operations: clear PO trails, supplier KYC, customs documentation, end-customer evidence. Specialist lenders are more flexible than banks but demand the same discipline.

Certainty

Variable. Banks can withdraw or reduce trade lines on credit reviews, country-risk events, or sanctions changes. Specialist lenders are more accommodating but more expensive. Concentration on a single corridor (e.g. China imports) creates fragility worth diversifying.

Flexibility

Limited within a transaction (the lender funds against the documents, not the borrower's preferences) but flexible across transactions. A revolving facility can fund 6–8 trade cycles per year.

In the market

Who actually uses it.

UK trade finance is provided by:

High street and challenger banks — HSBC and Standard Chartered dominate cross-border trade; NatWest, Lloyds, Barclays, and Santander cover domestic-heavy businesses.
Specialist trade lenders — Bibby Financial Services, Investec, Stenn, Tradewind, Falcon, and several debt funds active in commodities and consumer goods.
UK Export Finance — the government's export credit agency. Underused by SMEs. Particularly valuable for export bonds and cover for emerging-market buyers.
Fintech platforms — Stenn, Marco, Tradeshift, providing platform-led trade finance to mid-market importers.

Other options

Alternatives.

Invoice finance — funds the receivables side; often run alongside trade finance.
Supplier finance — different mechanism but addresses similar problems where you supply (not buy from) large counterparties.
Asset based lending — for larger trading businesses, ABL can include trade finance as a sub-line.
Term loan — for one-off large purchases where the trade isn't a recurring cycle.
Stock finance — funds inventory after it lands in the UK, often used in tandem with import loans.
Cash on the balance sheet — the cheapest trade financing of all, when affordable.

Summary

Summary.

Trade finance is operationally heavy and slow to set up, but for businesses that genuinely need it — importers, exporters, and traders — it is structural plumbing. Without it, working capital cycles stretch from weeks to months and growth becomes self-funding only.

Used well, it pays for itself many times over by enabling trade that wouldn't otherwise happen. Used badly — as a substitute for working capital, or by businesses without the operational discipline to manage documents — it becomes an expensive, frustrating product that delivers less than promised.