Understanding the Essentials of Unstructured Trade Finance: Letters of Credit, Demand Guarantees, Bills of Exchange, Promissory Notes, and Bank Payment Obligations


Produced in partnership with Sullivan
Practice notes

Understanding the Essentials of Unstructured Trade Finance: Letters of Credit, Demand Guarantees, Bills of Exchange, Promissory Notes, and Bank Payment Obligations


Produced in partnership with Sullivan

Practice notes
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Introduction

What is trade finance?

The Term 'trade finance' is used to cover a number of different forms of financing and methods of payment, from secured syndicated financings to letters of credit. Broadly speaking, trade finance is used by buyers and sellers of Goods internationally to provide credit support for the different stages of the sourcing, production and sale of Commodities.

The term ‘trade finance’ covers structured and unstructured transactions. Structured transactions are where a borrower (usually a producer or seller of goods) receives a loan to finance the production/processing of the goods, or for cash flow purposes. This loan has some form(s) of security and structure of cash flows. A typical structure would result in the loan being repaid by the sale proceeds of the goods. Forms of structured trade finance include pre-export finance, prepayment finance, tolling, borrowing base financing, reserve base lending and warehouse finance.

See Practice Note: Introductory guide to structured trade finance for further details.

Unstructured trade finance is typically a way of financing trade (usually to assist with a borrower’s capital management),

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United Kingdom
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Term definition
What does Term mean?

The period of time from when a loan is borrowed to its final stated repayment date

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