Trade and supply-chain finance

What trade finance covers

Trade finance is a family of products rather than one loan. The British Business Bank says it helps businesses to manage those risks by providing guarantees and advance payments, and lists letters of credit, export credit insurance, bonds and guarantees, and export factoring among them. The main types are:

• Import and payables finance. A funder pays your supplier and you repay later, once the goods have sold. Banks offer pre-shipment and post-shipment buyer loans (one UK bank).
• Letters of credit and bonds. A bank promises payment or performance on your behalf, so a supplier or buyer you have never met will trade with you.
• Supply-chain finance (SCF). Also known as reverse factoring and supplier finance: a funder pays a supplier’s invoice early, and the buyer pays the funder on the due date.
• Government support. UK Export Finance (UKEF) gives banks partial guarantees under its General Export Facility (gov.uk) and its Bond Support Scheme (British Business Bank).

How to work out what import finance costs

1. Enter the supplier invoice and the share funded. Some funders pay the whole invoice; banks may fund only part.
2. Enter how long you need the money. Count from paying the supplier to the day you expect to repay from sales.
3. Choose how it is priced. Fintech funders often charge a flat fee per month; banks usually charge a margin over a base rate.
4. Compare the annual figures. A monthly fee that looks small adds up over a year. Compare the effective annual cost with an overdraft or revolving facility.

When businesses use it

Trade finance is used when cash goes out long before it comes back in. An importer that pays an overseas supplier months before the goods sell can use import finance to bridge the gap between settlement of trade payables and sales.

Exporters use it to manage the risk of selling to buyers they do not know. The government’s export guidance says to consider a letter of credit when your exports are high value and you can’t get certainty of payment by any other method. Overseas buyers may also ask for an advance payment, performance or warranty bond.

Supply-chain finance is led by a large buyer. It gives the buying business more time to pay suppliers while also allowing suppliers to benefit from being paid early.

It is the wrong tool for slow stock. One provider says its product tops out at 120 days, and suggests a longer plan if stock takes a year to sell.

Facility sizes

Sizes depend on the product and the provider. UKEF’s General Export Facility can support facilities up to around £25 million, and UKEF has given participating banks delegated authority of up to £10 million per UK exporter. One fintech provider offers up to £2m on payables; one independent funder in the UK Finance directory offers trade finance within facilities of £200k to £5 million. Supply-chain finance programmes may set a minimum invoice spend.

How the main products work

• Pre-shipment loans. One UK bank advances money against a supplier’s proforma invoice for up to 50% of the value of goods, typically within 60 days prior to shipment.
• Post-shipment loans. The same bank lends once the supplier’s invoice and evidence of shipment are presented (product sheet).
• Fintech payables finance. One provider pays suppliers directly for 30 / 60 / 90 / 120 days, chosen invoice by invoice.
• Export finance against goods. A 2022 government and UKEF guide says lenders will often fund up to 80% of the value of the goods, depending on risk (Trade Finance Global, DIT and UKEF, 2022).
• Export factoring. The British Business Bank says a business receives up to 95% of the value of the invoice.
• UKEF guarantees. The General Export Facility supports facilities with maximum repayment terms of up to 5 years. Under the Bond Support Scheme UKEF guarantees up to 80% of the value of the bond.

Open-account terms for exports are usually 30, 60 or 90 days from invoice, delivery or completion, which is the gap most trade finance is sized to cover.

What it costs

The British Business Bank is blunt: trade finance can be costly due to the fees and interest charged. Pricing depends on the product:

• Import and payables finance from fintech providers is often a flat monthly fee. One provider charges a flat 1.4–3% per month of the amount financed, which it says is 5.6–12% in total over 120 days, and nothing for an unused limit. Example At 2% a month (within that range) for 120 days, £100,000 costs £8,000, a simple annual rate of about 24.3%.
• Bank trade loans are usually priced as a margin over a base rate such as Bank Rate (3.75% as at 19 October 2026 (Bank of England)). Banks do not publish typical trade loan margins.
• Letters of credit and guarantees carry bank fees for opening, amending, presenting documents and fixing discrepancies. Ask your bank for its current trade tariff and for a quote on confirmation, which depends on the bank and the country.
• Supply-chain finance is paid by the supplier who takes early payment: the invoice is paid less a fee based on the credit rating of the buying business. The British Business Bank says suppliers can usually access it at a lower rate than other funding sources.
• UKEF support costs the bank a guarantee fee, which UKEF says is a proportion of the interest margin you pay the bank.

Security, guarantees and covenants

The goods themselves are usually the main security. The 2022 government and UKEF guide describes trade finance as a loan whereby the exported goods act as the main form of security or collateral. For post-shipment import loans, the bank takes a pledge over the goods until the loan is repaid (one UK bank).

Bonds often need cash collateral, which ties up working capital. The British Business Bank says this is the pressure UKEF’s 80% bond guarantee is designed to relieve (guide, 2026). Personal guarantees are sometimes part of the facility at one fintech provider, depending on size and structure. In supply-chain finance the funder relies mainly on the buyer’s credit, so the supplier usually gives no security.

Bank trade lines often sit inside a wider banking facility and share its covenants. The tighter rules are documentary: under a letter of credit the documents must tally, and match completely with the information on your export invoice, or payment can be delayed. In supply-chain finance, an order above the agreed limit will not be paid by the funder (British Business Bank).

Who qualifies

The British Business Bank says new start-ups may struggle to access trade finance because it is usually available only to established businesses with assets and a trading history. Supply-chain finance is generally only available to businesses that have been trading for a few years and have a good credit history. Expect to share export contracts and shipping agreements.

For UKEF’s General Export Facility, the exporter must show that UK export sales made up at least 20% of turnover in any one of the last three financial years, or at least 5% in each of them, and have UK premises and employees.

Who provides it

• High-street and international banks: trade services, letters of credit, guarantees and import loans.
• UKEF-approved banks offering the General Export Facility; gov.uk says there are sixteen participating lenders.
• Independent invoice and trade finance specialists (UK Finance directory).
• Fintech payables and stock finance platforms that pay suppliers directly.
• Supply-chain finance platforms run by banks and non-bank funders.
• UK Export Finance, the government’s export credit agency, established in 1919.

Pros and cons