International trade has been hit hard as a result of the global pandemic. The trade finance gap has widened and SMEs are disproportionately affected. Many are unable to borrow from legacy banks as these institutions have either become extremely risk-averse and, or as usual, are reluctant to provide funding to companies that have smaller balance sheets.
In these unprecedented times, when legacy banks are well behind the curve, it is time for SMEs to truly look at alternate trade finance providers such as international export-import banks, like Euro Exim Bank, and other trade finance and factoring companies. There are many advantages to working with such service providers and, in this article, we will look at those that are most beneficial to SMEs.
Quick Turnarounds & Better Treatment
Legacy banks are usually slowed down by legacy systems and archaic processes. They have little room for agility and quick turnaround times, which is crucial in the present trade environment. Furthermore, unlike legacy banks, focused trade finance providers are not looking to cross-sell other unrelated products. Trade finance is not simply a small business component for these alternate providers, it is their main business. Thus, you will receive better treatment and enjoy a more focused approach.
Favorable Accounting & Balance Sheet Enhancement
When you discount receivables at a legacy bank, your cash-in-bank and your short-term borrowings increase, effectively having zero effect on your balance sheet. In fact, in the event of a buyer default, the legacy bank will pursue a dual recourse recovery mechanism, which means more potential debt for your business.
On the other hand, when you work with an alternate trade finance provider, through a factoring arrangement, for example, you will enjoy increased cash-in-hand and your receivables are removed from your balance sheet. Many such institutions will offer these services on a non-recourse basis, meaning that, in the event of a buyer default, they will file an insurance claim against the buyer, leaving the seller out of the matter entirely. Thus, making it an excellent way for SMEs to manage risk.
Cross Border Support & Reduced Need for Collateral
Alternative service providers will usually function across borders, while legacy banks will usually focus only on their domestic market. Furthermore, unlike legacy banks, factoring arrangements and other trade finance mechanisms provided by alternate providers do not have huge collateral requirements, enabling small businesses to easily access financing.CategoriesTrade FinanceTagsImport export, trade finance
