Underwriting Standards for Trade Finance Deals: How Financely Screens, Prices, and Mitigates Risk

1 — Borrower Quality – The Eligibility Gate

Financely backs importers, exporters, processors, and distributors with at least two audited years of profitability and ≥ USD 10 million EBITDA. Key ratios:

• Net-debt-to-EBITDA < 3.5 × post-facility;
• DSCR > 1.25 × based on forward cash-flow;
• Equity cushion > 25 % of total capital employed.

Management must show a verifiable trading record, clean KYC, and no unresolved sanctions or AML flags.

2 — Collateral Control – Perfecting the Security

We analyse control points across the supply chain:

• Warehouse receipts or title docs endorsed to the security agent;
• Assignment of export contracts or purchase orders to lock receivable flows;
• Pledge of collection accounts under blocked-account control or cash-sweep triggers;
• Marine cargo & stock throughput insurance naming lenders as loss-payees.

3 — Cash-Conversion-Cycle Metrics

We model the transaction timeline from supplier payment to end-buyer settlement. Acceptable windows:

If cycle days exceed commodity norms, we layer an availability haircut or require additional collateral.

4 — Facility Typology & Covenant Grid

Documentary Letter of Credit (DLC)

• Issued under UCP 600; sight or usance < 180 days;
• Back-to-back LC permitted where confirmed by an investment-grade bank;
• Trade-to-document ratio tested: compliant docs must cover ≥ 103 % of invoice value.

Standby LC-Backed Revolver

• ISP 98 standby from rated bank posted as collateral;
• Borrowing base = 85 % of eligible receivables + 70 % of inventory (LTV resets monthly);
• Automatic cash sweep if collateral coverage dips below 110 %.

Pre-Export Finance (PXF)

• Off-take contract assigned; advance rate 60–70 % of discounted invoice stream;
• Minimum two-party trigger insurance on political-risk jurisdictions;
• Forward-sales hedge mandated when revenue is linked to LME or ICE indices.

5 — Risk-Transfer & Hedging Requirements

• Commodity Price Risk – Futures or swaps to neutralise outright exposure; options overlay for inventory > 60 days.
• FX Mismatch – Forward contracts or NDFs aligning payables and receivables currencies.
• Counterparty Risk – Payment guarantees or credit insurance if end-buyers are sub-investment-grade.

6 — Approval & Monitoring Workflow

1. Credit Committee – unanimous vote required for tenors > 90 days or exposure > USD 20 million;
2. Disbursement Conditions – all collateral perfected, insurance in force, hedges executed;
3. Ongoing Reporting – weekly position & mark-to-market; monthly management accounts; auditor sign-off annually;
4. Early-Warning Triggers – margin calls, covenant breaches, or payment delays automatically limit new drawdowns pending cure.

7 — Why We Decline Deals

• Zero equity or first-loss share from the borrower;
• Unverified commodity title or storage control;
• Speculative arbitrage with no hedging strategy;
• Borrowers unwilling to accept financial-reporting covenants.

8 — Alignment of Incentives

Financely earns its largest fee tranche when the transaction closes and performs. Declining weak files protects our P&L and our lender relationships. Our underwriting team is therefore hard-wired to prioritise quality over deal count.

Questions?

For a detailed term-sheet review, email info@financely-group.com or submit your draft transaction through the client portal for a 48-hour feasibility opinion.