Securing finance in complex trades

Commodity finance is the term used for funding the trade of commodities and is used by many companies, including producers, traders and commodity lenders.

Commodities have always been difficult and complex products to finance. They typically have low margins and goods are traded cross border in jurisdictions where there may be a lack of trust. This means that many financiers are hesitant to work with new or growing companies, as there is knowledge in the fact that if there is a sudden difficulty, shipment or quality issue, then it means that a previously profitable trade may cause major difficulty for the company. This is intensified as trades are larger and commodities are more specialised.

Commodity finance has historically been a specialist financing type because of this perceived risk and enforcement. This specialist knowledge has led to specialist funders who have a knowledge and ability to re-sell the underlying commodity.

Given the volatility and low margins, commodity finance is complex and difficult to secure in comparison to other asset classes.

Types of Commodity Finance

• Pre-export finance
• Countertrade
• Barter
• Inventory finance

An example of commodity finance may be a deposit or pre export finance deal.  It is a type of lending that fits into trade finance and is actually split into three groups of commodities, which include metals and mining, energy and soft commodities. It is a financing technique used by many producers, lenders and trading houses.

For further information and advice please get in touch to discuss your individual needs. We’re always happy to have a no obligation chat to discuss options.