How to Secure Contract-Backed Trade Finance
In trade, contracts are more than paperwork—they are collateral. When a company holds a binding purchase order or sales agreement, that contract can be monetized to raise financing. Securing contract-backed trade finance allows exporters, importers, and distributors to cover production, shipping, and logistics without waiting for end-customer payment. This article explains how businesses across commodities and goods can access this type of facility, what options exist for raising capital, and what lenders look for when evaluating deals.
What Can Be Financed
Lenders provide contract-backed trade finance across a wide range of sectors. For commodities, this includes oil & gas cargos, metals such as copper or cobalt, agricultural products like cocoa, coffee, and grains. For goods, it extends to electronics, industrial equipment, textiles, and food distribution. The key requirement is that the underlying contract is legally enforceable and backed by a buyer with a strong credit profile.
Example:
A textile distributor in Turkey signs a $1.2m supply contract with a European retailer. By presenting this contract to Financely’s network, the distributor secures 80% pre-shipment financing to pay mills and cover freight, ensuring on-time delivery without exhausting its own cash.
Capital Raising Options
Contract-backed trade finance can be structured in several ways depending on the size, jurisdiction, and risk profile of the transaction:
- Bilateral Lender Facility:
A single trade finance lender provides the funding directly against the contract.
- Club Deal:
Multiple lenders participate, sharing exposure on larger transactions (commonly $20m+).
- Securitization / Note Issuance:
Pools of receivables or contracts are packaged and funded by institutional investors through an SPV.
- Revolving Facilities:
For repeat exporters, facilities can be set up on a rolling basis tied to contract flow, creating predictable liquidity.
The Lender Checklist
Every lender applies a checklist before approving a contract-backed financing request. While criteria vary, most will evaluate:
- Contract Validity:
The contract must be legally binding, signed, and enforceable in a recognized jurisdiction.
- Buyer Creditworthiness:
Counterparty risk is central. Buyers with investment-grade ratings or strong payment history are preferred.
- Performance Risk:
The borrower’s ability to deliver goods as per contract terms.
- Underlying Goods:
Clarity on type, origin, and transport arrangements. High-value commodities often require collateral management.
- Jurisdiction:
Laws governing the contract and trade route can affect eligibility.
- Insurance and Mitigation:
Cargo insurance, political risk cover, or credit insurance may be required.
- Margins and Advance Rate:
Lenders typically advance 70–85% of contract value to leave room for cost overruns and market volatility.
A well-prepared borrower presents not just the contract but also supporting documents—company financials, buyer profile, logistics plan, and insurance cover. These reduce due diligence friction and improve pricing terms.
Secure Contract-Backed Trade Finance
Financely structures and arranges contract-backed trade finance across commodities and goods. Our lender network evaluates purchase orders, sales contracts, and offtake agreements globally. Submit your transaction and receive a preliminary term sheet.
Contact Us
Financely acts as an arranger and advisor. All transactions are subject to lender approval, counterparty due diligence, and compliance. Terms, advance rates, and pricing depend on contract size, commodity type, and buyer strength.