Trade finance (letters of credit, bonds and trade loans)
Bank products that help businesses buy from or sell to other countries: guarantees that you will be paid, bonds your buyer may ask for, and short loans to pay suppliers. They reduce the risk of trading abroad, but they are complex and usually need a track record.
- Secured on assets
- Debenture (charge over company assets)
- Secured on invoices
How it works
Trading across borders brings two problems: a long wait between paying suppliers and being paid, and the risk that an overseas buyer does not pay. Trade finance tackles both.
- Letters of credit: a bank promises the seller will be paid if the goods are delivered on time and the right documents are provided. Useful between buyers and sellers in different countries who do not know each other. Some countries require them.
- Bonds and guarantees: an overseas buyer may ask your bank for an advance payment, performance or warranty bond, which guarantees payment if you do not meet your side of the contract.
- Trade loans: short-term funding to pay suppliers or buy stock, or working capital for a specific contract, sometimes as a revolving facility.
- Export credit insurance: protects you if an overseas buyer does not pay.
- Export factoring: sell your export invoices at a discount for up to 95% of their value, usually within 24 hours.
Start with your bank. If it cannot help, UK Export Finance, the government's export credit agency, can support banks with guarantees and insurance.
Upsides and downsides
Upsides
- Reduces the risk of not being paid by overseas buyers
- Frees up working capital while goods are in transit
- Can help you offer competitive payment terms and win orders
Downsides
- Usually needs a trading history and assets, so start-ups may struggle
- Fees and interest add up
- Complex documents and rules, which may need an expert
Risks
- Documents not matching the letter of credit, so payment is delayed or refused
- Being liable under a bond if you do not meet the contract
What it costs
- How it is priced
- Fees for letters of credit and bonds, and interest and fees on trade loans
- Costs that are easy to miss
- Bank fees for issuing, checking and amending documents
- Interest and arrangement fees on trade loans
- Charges if you default, and the time spent on paperwork
Set by the bank for each transaction or facility.
Does it fit?
Could fit when
- You buy from or sell to businesses in other countries
- You are an established business with a trading history
Unlikely to fit when
- You are new, with little trading history or assets
- You only trade within the UK
Who can use it
- Business types: Sole trader, Partnership, Private limited company, LLP, Public limited company
- Needs sales (revenue)
- Usually only for established businesses with assets and a trading history
- A good credit history
- Documents such as export contracts and shipping agreements
Am I ready?
What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all asset-based and specialist lending
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- Export or import contracts
- Shipping documents
- Accounts and trading history
Regulation and protections
Commercial finance, generally outside statutory conduct regulation. Many smaller businesses can take an unresolved complaint about a bank to the Financial Ombudsman Service.
Types of provider: High-street and international banks; Specialist trade finance companies; Credit insurers.
Also consider
Sources
- British Business Bank: What is trade finance and how does it work? · checked 7 October 2026
- NatWest: Trade loans · checked 7 October 2026
- Financial Ombudsman Service (small business): Who we can help · checked 7 October 2026