Loan type
Trade finance: funding goods that are in transit
Letters of credit, import financing and supply-chain programmes — priced per transaction, and a different conversation from a term loan.
At a glance
| What it solves | Nobody wants to go first across a border |
|---|---|
| Main instruments | Letters of credit, documentary collections, import lines |
| Priced as | Fees per instrument, plus interest on any financing |
| SBA export routes | EWCP and Export Express |
| Standby LCs | Eligible under CAPLines, Export Express and EWCP as bid or performance bonds |
| Who offers it | Banks with a trade desk; not every bank has one |
A good fit when
You import or export goods and need to bridge production, shipping and payment terms with a counterparty you cannot simply trust on open account.
A poor fit when
Your supply chain is domestic and your real problem is a general cash gap.
The problem trade finance exists to solve
A supplier overseas does not want to ship before being paid. You do not want to pay before the goods arrive. Neither of you can easily sue the other. Trade finance is the set of instruments that lets the transaction happen anyway, by putting a bank in the middle.
| Instrument | What it does |
|---|---|
| Letter of credit | A bank undertakes to pay the supplier once specified documents are presented. The supplier relies on the bank, not on you. |
| Documentary collection | Cheaper and weaker: banks handle documents but do not guarantee payment. |
| Import line / trade loan | Finances the goods from payment until you have sold them and been paid. |
| Standby letter of credit | A guarantee rather than a payment method — used as a bid bond, performance bond or advance payment guarantee. |
| Supply-chain finance | Your buyer's bank pays your invoice early at a discount based on the buyer's credit. Only exists if a large buyer runs a programme. |
Where the SBA fits
The SBA's trade-related programmes are export-side: the Export Working Capital Program and Export Express, covered on SBA export loans. Both can be revolving, and standby letters of credit are eligible under them where required as a bid bond, performance bond or advance payment guarantee.
What it actually costs
Trade finance is quoted as fees per instrument plus interest, not as an APR, which makes it hard to compare to anything else. Build the total per shipment:
- Issuance and amendment fees on the letter of credit.
- Confirmation fees, if the supplier wants a second bank's undertaking.
- Document examination and discrepancy fees — these recur, because documents are frequently discrepant.
- Interest for the financed period.
- FX cost and spread, which is often the largest hidden item.
Practical notes
- Not every bank has a trade desk. A bank without one will be slow and expensive. Ask directly.
- Discrepant documents are the norm, not the exception. Build the handling time into your plan.
- Incoterms decide who bears what — agree them before the financing conversation, not after.
- Export grants exist too, separately: the STEP programme reimburses export marketing and trade show costs through state governments. See small business grants.
Questions people actually ask
What is a letter of credit?
An undertaking by a bank to pay a supplier once specified documents are presented. It lets a supplier ship to a buyer it has no reason to trust, because it is relying on the bank's credit rather than the buyer's.
Does the SBA help with importing?
Its trade programmes are aimed at exports -- the Export Working Capital Program and Export Express. Import financing is generally a commercial bank product, so budget for commercial pricing.
What is supply-chain finance?
An arrangement where a large buyer's bank pays its suppliers early at a discount, priced on the buyer's credit rather than the supplier's. It only exists where the buyer runs a programme, so ask your largest customers whether they do.