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Trade finance lenders rarely fund 100% of a cargo. They advance against a share of the transaction value and expect the trader to cover the rest from their own balance sheet. That shortfall is the equity gap, and it is the single most common reason viable commodity deals never close.
This guide explains where the gap comes from, the practical ways traders fund it, which options cost the least margin, and how Financely structures transactions so the gap is smaller before any lender sees the file.
The gap is the lender's protection. A trade finance facility is secured on the goods and the receivable. If prices fall, the cargo is delayed or the buyer disputes quality, the lender needs a cushion between what it advanced and what the collateral can be sold for. Your contribution is that cushion. It also proves you have money at risk in the deal, which lenders treat as a test of commitment.
The gap varies with risk, not with your enthusiasm. Volatile commodities, weak buyers, long voyages and difficult jurisdictions all push advance rates down. Strong offtakers, insured receivables, independent collateral management and a track record push them up.
The figures below are illustrative. Take a trader buying a cargo for USD 5 million and selling it for USD 5.4 million. A lender offers to advance 80% of the purchase price, so USD 4 million. The trader must fund the remaining USD 1 million before the supplier will ship. The expected gross margin is USD 400,000, which means the trader needs more than twice their expected profit in cash to do the deal at all. Each method below either shrinks that USD 1 million or brings someone else in to fund it.
Negotiate deferred payment on part of the price, or a smaller deposit with the balance on documents. Every dollar of supplier credit is a dollar you do not need to fund.
A creditworthy offtaker may pay a deposit or partial prepayment in exchange for a better price or secured supply. This is often the cheapest capital in the chain.
Insuring the buyer receivable with a rated insurer lowers the lender's risk and can raise the advance rate, shrinking the gap directly.
An independent collateral manager controlling the goods in a warehouse or at port gives lenders comfort to lend more against inventory.
An investor funds the gap for a share of the deal profit, one cargo at a time. Expensive, but it uses no balance sheet.
A specialist fund lends behind the senior lender, usually at a higher rate, covering part or all of the gap.
Most closed deals combine several of these. Supplier terms and an insured receivable might reduce a 20% gap to 8%, and a transaction partner then covers what remains. Our structured trade and commodity finance guide explains how these layers sit together in a single facility.
| Option | Cost to the trader | Best fit |
|---|---|---|
| Supplier credit | Low, sometimes a small price premium | Repeat suppliers who already trust you |
| Buyer prepayment | Low, usually a price discount | Strong offtakers who value secured supply |
| Credit insurance | Premium on the insured receivable | Creditworthy buyers in insurable jurisdictions |
| Collateral management | Monitoring and warehousing fees | Inventory held before sale |
| Transaction equity partner | High, a share of deal profit | Traders with strong deals but thin balance sheets |
| Mezzanine debt | High interest, junior security | Repeat flows with proven performance |
Start with the cheapest layers. Traders often jump straight to an equity partner and hand over half their margin, when better supplier terms or an insured receivable would have closed most of the gap for a fraction of the cost.
We reduce the gap before we fund it. Financely reviews your supply contract, offtake, logistics and security package to find where the advance rate can be improved, then models the remaining contribution. Only after that do we approach capital providers.
We place each layer with the right provider. Using AI Lender Match, we screen the transaction against more than 12,700 verified lenders, including structured commodity finance desks, private credit funds and specialty lenders, and match the senior facility and any junior capital to providers whose mandates fit the commodity, corridor and ticket size.
You keep control of the deal. We present the options and their cost side by side, so you can decide how much margin to share and with whom.
Send us the transaction details and we will reply with a quote covering scope and delivery.
It is the part of the transaction value the lender will not finance, which the trader must fund from their own resources or other capital before the deal can proceed.
Rarely through a single lender. Combining supplier credit, buyer prepayments and junior capital can reduce the trader's own cash contribution close to zero on strong transactions, but each layer has a cost.
No. Lenders require real, unencumbered funds or a recognised capital layer. Leased instruments and rented proof of funds are not accepted and are frequently linked to fraud.
It depends on the commodity, the counterparties and the deal history. Partners price for risk, so stronger security and offtake terms lead to a smaller share.
This article is general information only and is not legal, tax or investment advice. Financely is an advisory and arranging firm, not a lender or broker-dealer. All financing is subject to lender underwriting, due diligence, credit approval, documentation and conditions precedent. No outcome or timeline is guaranteed.
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