Structured Trade Finance (STF), a type of debt financing, is used as an alternative to conventional loans. This form of funding is used regularly in developing countries, as well as in relation to cross-border transactions. The goal is to encourage trade using non-standard security. STF is usually used in high-value transactions in bilateral trade relations. As a more complex type of financing, STF is commonly linked to the bargaining of commodities.
In the commodity sector, STF products are the most widespread. It is used by producers, processors, traders, as well as end users. These financial arrangements are adapted by banking organizations to meet the specific needs of customers. STF products are primarily funding for working capital, warehouse financing and pre-export financing. There are also institutions that extend loans to the reserve, as well as finances of the conversion of commodities into products, as well as other personalized financial products. In order to promote trading activities, STF products are extended to the supply chain.
STF structures are sponsored by limited remedy financing lines. The structure aims to provide a better safety mechanism and act as a miniation on the position of the borrower during isolated visualization.
How did technological advances completed the STF?
Commercial Credit Insurance, Banking Insurance, Letters of Credit, Factoring and Failure are some of the STF products that have been positively affected by the latest technological advances. These products have changed due to recent developments. Massive progress in the fields of communication and information have also helped banking institutions track the physical risks and procurement chain events between the exporter and the importer.
Why are the STF facilities used?
Structured trade financing products are used to ensure that the risks associated with trading in specific countries and different jurisdictions can be mitigated. Any transaction with STF products help add trade resilience and can not be indicated by examining the financing of individual elements of a business. In addition, it extends the payment time, strategy strategy, funding diversification, and strengthen customer capacity to strengthen the size of the facilities.
What makes the STF extremely attractive is that the strength of the borrower in the transaction is not examined as closely as that of a loan to vanilla. Here, the focus is on the underlying structure and cash flow. Another reason for the popularity of the STF is that transactions are not reflected in the balance sheet of a company and the presence of this financing option has helped several importers to maintain flexible credit conditions with exporters.