Trade Finance – What Is It & How To Avail It?

Trade Finance, also known as a trading loan, is availed for the purpose of conducting trade, both domestic and international. Many banks and financial institutions are offering trade finance and thus, facilitating small trade businesses in India. In this article, we shall discuss trade finance in detail and how you can avail it.

What is Trade Finance Loans?

A business loan availed for the trade of goods and services is called trade finance loans. The credit availed under this type of business loan can only be used for trading and business purpose. A trade loan helps the business owner easing cash cycle and pay his suppliers on time. The funds can also be used to increase the inventory of goods and services and for business expansion as well.

A borrower may look forward to avail a trade loan with collateral or without collateral. There are many small business loan providers in India who offer both types of trade finance loans at affordable interest rates and minimal documentation.

What are the documents required for Trade Finance?

The documents required for a trade finance is no different from the ones required for other types of loan for the business. Nonetheless, it is worth mentioning that the required list of documents differs from one trade loan lender to another. Significantly, banks require a long list of business loan documents required as compared to the NBFCs and online lenders.

The generic list of documents for trade finance includes:

  • PAN Card – for information related to income and income tax returns
  • Last 12-months bank statement to check the financial behavior of the borrower
  • Last 2-3 year ITR for income-related information
  • Business place and residence address proof

If a collateral trade finance loan is being availed, the documents of the asset will also be required. Also, the total trade loan amount that would be sanctioned will depend on the collateral’s market value. In addition, the total loan approval time will be extended since it would take some time for the small business loan providers in India to compute the value of the collateral.

What is the Eligibility Criteria for Trade Finance?

The eligibility criteria of most of the small business loan providers in India to avail a trade finance is more or less same. If the borrower meets the following conditions, he can avail a trade finance:

  1. Borrower’s Age: The interested candidate’s age must be between 25-60 years, either in sole proprietorship or partnership.
  2. Business Age: Not many lenders offer trade finance to new businesses since they do not want to risk their money. The business vintage must be at least 2 years. Being in operation for at least 2 years, the borrower can provide the ITR, bank statement, and other related documents that can prove the credibility of the borrower.
  3. Collateral-free Loan: If the borrower opts to avail an unsecured trade finance, the business place or the residence should be owned by the borrower.
  4. Other: There are other eligibility criteria as well set by the lender, such as a minimum turnover of Rs. 10 lakhs, etc.

Notably, a trade finance loan is usually offered on the past credit history and operations of the company. Therefore, it is not easy for the startups and new companies to avail a trade loan.

How to Get trade Finance Loan?

To avail a trade finance loan, the borrower first has to meet the eligibility criteria laid by the small business loan lender. And then collect all the required documents. Notably, one important thing here is the CIBIL score. The minimum CIBIL score for a trade loan is 700 (300-900 being the threshold). The borrower must check his credit or CIBIL score and then only apply for a loan for trade. And in case his score is lower than the required threshold, then he must work towards improving it since a good CIBIL implies his creditworthiness.

Now, with the advancement in technology, many small business lenders in India are offering trade loan online. So, a borrower can apply for a trade loan online. The following are the steps to apply for a trade loan:

  1. Visit the website of the lender and fill their online application form. Many lenders also offer their mobile App and the borrower can download it to apply online. Also, the required information must be correctly and duly filled.
  2. After applying, upload the required documents on the website or mobile App. Most lenders these days require minimal documentation. In addition, they have easy to meet eligibility criteria as well.
  3. Most financial lenders these days offer quick approval and disbursement process. If all the documents are in the place, the loan application will be approved and funds will be transferred within a few days.

Bottom Line:

A trade finance is an external source of funds. It is usually a short-term loan which is availed to help trading business focus on its growth. This finance can be secured or unsecured and can be easily availed online. There are a number of small business loan providers in India who offer trade loans at minimal documentation.

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