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Trade Finance Process | Physical Commodities | Import Export
Trade finance is not “asking for a facility.” It is proving a repeatable physical flow, documenting controls, and giving a credit committee a clean repayment path. When deals fail, it is rarely because the idea is bad. It is because the file is not underwriteable.
This article is a step by step operating playbook for raising trade finance in physical commodities and general import export. It uses market standard language: borrowing base, conditions precedent, collateral management, documentary flows, and credit committee process.
You cannot raise trade finance without speaking the same language as banks and funds. Documentary credits often rely on UCP rules, and trade contracts rely on Incoterms definitions for risk transfer and cost allocation. Trade finance teams also take trade based money laundering risk seriously, so compliance needs to be designed into the transaction file, not added at the end.
A lender funded trade has a predictable lifecycle. Treat it like a project plan with deliverables, owners, and dates. The table below is the clean sequence lenders expect.
| Stage | What you do | What the lender does | Output |
|---|---|---|---|
| 1) Define the trade and funding ask | Lock the commodity, quantity, specs, Incoterms, route, timeline, supplier and buyer identities, and the exact cash gap to fund. | Quick screen for mandate fit: sector, jurisdictions, tenor, ticket size, sanctions exposure. | Funding scope and facility type shortlist. |
| 2) Initial structuring | Choose structure: borrowing base, transactional facility, LC or SBLC support, inventory finance, receivables purchase, prepayment, or hybrid. | Indicate required controls: collateral manager, cash waterfall, monitoring cadence, covenants. | Indicative structure memo and draft term sheet parameters. |
| 3) Build the lender file | Data room: contracts, documentary flow map, financials, KYB pack, counterparties, logistics, insurance, hedging policy. | Review completeness and assign diligence workstreams. | Submission ready credit pack. |
| 4) KYB KYC AML and sanctions | Provide UBOs, corporate docs, bank statements, trade history, counterparties, vessel and port data where relevant. | Screen parties, jurisdictions, beneficial owners, and transaction red flags. | Compliance clearance to proceed to credit review. |
| 5) Due diligence and underwriting | Support Q&A, provide evidence of performance, reconcile numbers, deliver site visit access if requested. | Validate trade flow, verify contracts, stress test margins, confirm collateral and exit, size advance rates and reserves. | Credit memo for credit committee. |
| 6) Term sheet negotiation | Negotiate pricing, advance rates, eligibility criteria, reserves, covenants, CPs, reporting, and controls. | Finalize credit conditions and legal scope based on risk and monitoring. | Signed term sheet and conditions precedent list. |
| 7) First loss capital (if needed) | Bring equity or junior risk capital: reserves, subordinated tranche, pledgeable cash, or risk participation. | Confirm attachment point and size, confirm documentation and cash control mechanics. | Capital stack that clears lender risk limits. |
| 8) Legal documentation and security | Execute facility agreement and security: pledges, assignments, account control, collateral management agreements. | Issue final legal drafts, verify CP evidence, coordinate closing mechanics. | Executed documents and “ready to draw” status. |
| 9) Funding and trade execution | Submit draw request with required documents. Run the trade exactly per agreed process. | Fund per mechanics: pay supplier, issue LC, or reimburse against documents. | Funds deployed into a controlled trade cycle. |
| 10) Monitoring and recycling | Deliver reporting, borrowing base certificates, shipment updates, collections evidence. | Monitor covenants, collateral, and performance. Adjust eligibility, reserves, and availability. | Repeatable line usage with stable availability. |
Lenders do not finance “commodity trading.” They finance a specific trade cycle or a portfolio of eligible trades with defined rules. Your first deliverable is a one page trade summary that answers underwriting questions without storytelling.
Minimum one page trade summary fields:
Structure selection is where most SMEs waste time. Pick a structure that maps to your documentary trail and your control points. If you cannot control documents or cash, expect lower advance rates, higher reserves, or a rejection.
For instrument taxonomy, see Trade Finance Instruments.
A lender ready file is not a folder of PDFs. It is a structured data room where the credit team can answer diligence questions fast. Your goal is to remove ambiguity: the contracts match the model, the model matches the bank statements, and the controls match reality.
| Data room folder | Exact contents | Why it matters |
|---|---|---|
| Corporate and KYB | Certificate of incorporation, registers, UBO declarations, director IDs, group chart, bank account proof, operating licenses if applicable. | Clears onboarding and reduces compliance loops. |
| Financials and cash | Audited or management accounts, trial balance, bank statements, debt schedule, aged AR and AP, working capital bridge. | Shows cash generation and validates reported numbers. |
| Trade contracts | Signed sale and purchase contracts, specs, Incoterms, payment terms, amendments, side letters, assignments if needed. | Proves enforceable trade rights and obligations. |
| Performance history | Past shipments, invoices, bills of lading, inspection certs, collections evidence, disputes record. | Supports credit appetite and advance rates. |
| Logistics and control | Freight terms, storage agreements, warehouse info, collateral manager proposal, inspection provider proposal, insurance certificates. | Shows what the lender can control if something goes wrong. |
| Risk management | Hedging policy, FX policy, sanctions policy, counterparties screening approach. | Shows discipline and reduces tail risk. |
Underwriting is not just financial ratios. In trade finance, underwriting is trade verification plus control verification. Expect diligence on counterparties, documentary trails, operational controls, and trade based money laundering risk indicators.
A trade finance term sheet is a negotiated risk control document. Pricing matters, yet controls and eligibility criteria decide whether the line is usable in real operations.
| Term | Exact trade finance meaning | What you negotiate |
|---|---|---|
| Facility type | Transactional, revolving, borrowing base, prepayment, LC line, inventory line, receivables purchase. | Pick the type that matches your flow, then align mechanics. |
| Advance rate and haircuts | Percentage of eligible collateral the lender will fund, net of reserves. | Increase with better controls, stronger buyers, insured flows, lower disputes. |
| Eligibility criteria | Definition of “eligible receivables” and “eligible inventory,” concentration limits, ineligibles. | Make the rules practical, or availability will be unusable. |
| Reserves | Availability reductions for dilution, concentration, seasonality, price risk, disputes, or operational risk. | Reduce with proof of performance, collateral manager, insurance, hedging. |
| Controls | Account control agreement, lockbox, cash waterfall, title and document control, collateral manager role. | Negotiate friction vs risk; keep draw process workable. |
| Covenants | Leverage, liquidity, minimum net worth, borrowing base compliance, reporting cadence. | Set realistic headroom using downside cases. |
| Conditions precedent | Legal, compliance, insurance, operational onboarding, control agreements, approvals. | Define a clear CP checklist and owners with dates. |
Some trades are fundable only with a first loss buffer. This is common in early stage commodity books, higher risk jurisdictions, thin margins, or new counterparties. First loss capital can be introduced in several market standard ways, depending on the lender and product.
If you operate a physical book, see Structured Commodity Trade Finance.
The legal close usually includes the facility agreement plus a security package and operational agreements. In commodity finance, collateral management and documentary control often matter as much as the facility agreement itself.
Typical closing document set:
Trade finance drawdowns are document driven. The lender funds when the draw request matches the agreed mechanics and documents evidence the trade step. The exact document set depends on the structure, yet physical commodity deals often require the same core proof points.
| Trade step | Typical evidence | Common control |
|---|---|---|
| Supplier payment | Supplier invoice, contract reference, payment instruction, compliance clearance. | Direct pay to supplier or controlled disbursement. |
| Shipment | Bill of lading, packing list, certificate of origin, inspection certificate, insurance. | Document control and release rules, sometimes collateral manager. |
| Title and storage | Warehouse receipts, storage agreement, inventory reports, valuations. | Collateral manager, warehouse operator acknowledgements. |
| Sale and collection | Sales invoice, receivables assignment notice, proof of delivery, buyer payment confirmation. | Lockbox or collection account under account control. |
| Repayment and recycling | Collections statement, borrowing base update, availability calculation. | Automatic sweep to repay, then re-advance per availability. |
Prepayments are a common tool in commodity supply chains, especially where producers need upfront cash for production, logistics, or working capital. They are also high scrutiny because they involve paying before delivery. The structure relies on enforceable delivery obligations, protections, and monitoring. For a technical walkthrough from a trading house perspective, read Prepayments Demystified.
Financely provides full scope trade finance advisory services for physical commodity traders, importers, and exporters. We structure the facility, build the lender ready package, coordinate diligence, manage term sheet negotiation, and support closing through funding and monitoring setup. Financely is not a bank and does not lend.
If you want a high level starting point, see What Is Trade Finance and Who Provides Trade Finance.
If you have a real physical flow and need lender capital, submit your deal. We revert with fit, a document checklist, and a proposed structure built for credit committee review and operational drawdown.
Start at How It Works or submit via Contact Us.
Timelines depend on data room readiness and transaction complexity. First time borrowers usually take longer due to KYB KYC setup, control agreements, and proof of performance requirements. Repeat flows with stable reporting and clean controls move faster.
A non-verifiable trade flow or unclear controls. Lenders need to see real counterparties, enforceable contracts, and documentary and cash control that matches the structure.
Not always. It becomes common when the trade has higher risk attributes: new counterparties, new corridors, thin margins, or limited track record. First loss capital can be structured as a reserve, junior tranche, or co-invest into the trade SPV.
No. Financely is not a lender. We provide structuring, packaging, and lender coordination services and coordinate execution through regulated partners where required.
This page is for general information only and does not constitute legal, tax, investment, or regulatory advice. Financely is not a bank and does not lend. Any engagement is subject to diligence, KYB, KYC, AML, sanctions screening, lender criteria, and definitive documentation. External links are provided for reference and do not imply endorsement.
Financely advises growth-focused businesses on accessing capital by introducing their opportunities to professional investors. Financely is not a securities broker or dealer. Where appropriate, engagements are coordinated with regulated broker-dealers, investment banks, legal counsel, and other specialists.
Financely does not solicit, offer, or accept orders to buy or sell securities and makes no assurance regarding capital-raising outcomes.
Services are strictly business-to-business. Financely does not provide personal finance, consumer credit, or retail advisory services.
Advisory services are reserved for post-revenue companies that recognize the time and resources required for professional underwriting.
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All mandates start with an RFQ. We review submissions, issue a brief Go/No-Go memo, and where bankable, release a Term Sheet that leads to funding. We arrange capital across Senior Secured, Unitranche, Second Lien/Mezzanine, Preferred Equity, and Gap Solutions. We do not process deals by email or chat.
Letters of Credit, Standby LCs, Confirmations, Receivables Finance, and Inventory Lines with control.
Funding arranged for trade flows with instruments sized to your cycle and aligned to delivery and settlement.
Move forward to secure working capital and keep goods moving. Submit the RFQ to start underwriting for funding.
Limited or non-recourse structures for energy and infrastructure with lender-ready materials.
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Advance the file to termable status. Submit the RFQ so we can underwrite and secure funding.
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Move to a financeable package. Submit the RFQ to initiate underwriting for funding.
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Financely Inc. (“Financely”) provides corporate-finance advice and is wholly owned by Aurora Bay Trust, a trust formed under Bahamian law, together with its authorized affiliates. Depending on deal structure, jurisdiction, and local rules, engagements may be carried out through Financely Group LLC, a non-deposit-taking, non-banking financial company; Ashford Capital Advisory LLC; or another related entity.
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