A trade finance facility term sheet is the blueprint for how a lender will control your trade flows, your collateral, and your cash. If you only read the interest margin and ignore the controls, you will learn the hard way during documentation or the first audit. This article explains the core clauses lenders care about and includes a sample, lender-style term sheet you can use as a reference.
A trade finance facility is a short-tenor funding program tied to verifiable trade transactions and controlled proceeds. Unlike generic working capital, the lender expects a documented source of repayment from goods, invoices, or contracted cash flows, plus a control package that prevents proceeds from disappearing into the general account.
Pricing matters, but in trade finance the true cost is driven by the operating burden and the conditions you must satisfy to keep availability open. The clauses below determine whether the facility is stable or constantly at risk of being frozen.
| Section | Why It Matters |
|---|---|
| Borrowing Base | Defines availability and reserves. A harsh eligibility regime can reduce a “USD 20M” facility into USD 6M in practice. |
| Advance Rates | Sets leverage on receivables and inventory. Rates increase only when controls and asset quality are strong. |
| Cash Management | Lockbox, blocked accounts, or controlled waterfalls determine whether proceeds repay the lender automatically. |
| Documentary Controls | Defines what evidence is required to fund and what evidence is required to remain funded. |
| Audits and Field Exams | These are operational and cost drivers. Poor readiness can trigger reserves, defaults, or reduced availability. |
| Covenants and Events of Default | Drives lender step-in rights, sweeps, and termination triggers. Definitions are where surprises hide. |
The sample below is written in a lender-style format. You should treat it as a starting point for structuring and negotiation. Terms must be adapted to your trade cycle, jurisdictions, collateral type, and control capabilities.
| Term | Sample Language |
|---|---|
| Status | Indicative only and non-binding. Subject to diligence, credit approval, KYC and AML, sanctions screening, and definitive documentation. |
| Parties | Borrower: [●]. Guarantors: [●]. Lender: [●]. Facility Agent/Security Agent: [●] (if applicable). |
| Facility Type | Senior secured revolving trade finance facility with sublimits for transactional import funding and/or receivables finance (as approved). |
| Facility Limit | Up to [USD/EUR] [●], subject to borrowing base availability and concentration limits. |
| Tenor | Facility term: [12–36] months. Transaction tenor: typically [30–180] days per draw. Extensions subject to lender approval and eligibility. |
| Use of Proceeds | Funding eligible supplier payments, in-transit periods, controlled inventory, and eligible receivables arising from documented trade transactions. No proceeds for sanctioned parties, prohibited jurisdictions, or restricted goods. |
| Eligible Collateral | Eligible receivables, eligible inventory/commodities, and proceeds, subject to title, assignability, verification, and control requirements. |
| Borrowing Base | Availability = (Eligible Receivables x AR Advance Rate) + (Eligible Inventory x Inventory Advance Rate) minus reserves and lender deductions. Borrowing base certificate frequency: [weekly/bi-weekly/monthly]. |
| Advance Rates | Receivables: up to [70–90]%. Inventory/commodities: up to [50–80]%. In-transit funding subject to documentary controls and insurance. |
| Concentration Limits | Limits by obligor, country, commodity, corridor, and storage location. Additional reserves apply on breaches. |
| Pricing | Interest: [SOFR/EURIBOR/SONIA] + margin [●] bps, floor [●] if applicable. Default interest: +[●] bps. Commitment fee: [●]% per annum on undrawn. |
| Fees | Arrangement fee: [●]%. Agency/admin fee: [●]. Lender counsel and third-party costs borne by Borrower, subject to agreed caps where applicable. |
| Cash Management | Controlled collection accounts. Cash waterfall applies: fees and expenses, interest, principal, reserves, then permitted releases. Lockbox or springing dominion based on triggers. |
| Security Package | First priority security over receivables, inventory/commodities, proceeds, collection accounts, and material trade contracts (subject to consents). Account control agreements and security perfection required before first draw. |
| Documentary Requirements | Contract set, invoices, transport documents (B/L, CMR, AWB), packing lists, inspection certificates as needed, warehouse receipts, evidence of insurance with lender loss payee, and confirmations of title/assignment. Incoterms aligned to controls. |
| Insurance | All-risk cargo and storage coverage with minimum limits and insurer rating requirements. Lender named as loss payee and additional insured where applicable. |
| Financial Covenants | Minimum liquidity, minimum net worth, leverage and/or fixed charge coverage, plus borrowing base excess availability trigger. Definitions and addbacks to be agreed in definitive documentation. |
| Reporting | Monthly management accounts, quarterly financial statements, annual audited statements. Borrowing base reporting on agreed cadence. Aging, concentration, collateral movement, and trade flow reporting as required. |
| Conditions Precedent | KYC and AML, sanctions screening, corporate authorities, legal opinions, security perfection, account control agreements, insurance evidence, satisfactory diligence on trade flows and counterparties, and operational readiness for reporting and audits. |
| Events of Default | Non-payment, covenant breach, breach of reps, insolvency, cross-default, invalid security, fraud or misrepresentation, sanctions breach, illegality, adverse judgments, change of control, and material breach of key trade contracts. |
| Governing Law | [England and Wales / New York / other], with jurisdiction provisions aligned to collateral and enforcement practicality. |
Most are drafted as non-binding, with limited binding provisions such as exclusivity, confidentiality, or cost reimbursement. The binding obligations usually arise in the definitive facility agreement and security documents.
Because repayment is expected from trade proceeds. Cash control reduces diversion risk and allows the lender to auto-collect on repayment without relying on borrower discretion.
Eligibility failures, weak reporting, concentration breaches, collateral shortfalls, audit exceptions, and poor documentary discipline. A facility is only as strong as the borrower’s operating controls.
If you are reviewing or negotiating a trade finance facility, share your trade flow summary, counterparties, contracts, collateral type, jurisdictions, and target facility size. We will revert with a structured term sheet markup list and a lender-ready document request.
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