Commodity Trade Finance, also known as CTF, supports and seeks funding solutions to leverage or assist the movement of commodities. This could range from metals, minerals and agricultural products to oil and gas. It can also include soft commodities such as pulses and grains.
The rapidly-changing landscape and ecosystem of CTF has caused traders to adapt to more efficient, sustainable, resilient and agile business models with sound financial capability. Today, having access to a diverse source of financing in the commodity market has become more crucial than ever before.
Structured Commodity Finance Facilities
Utilizing enhanced controls, structured commodity finance facilities contribute to the risk profile of a trader and is even cost effective. It requires a diversified funding source to be in place to provide sustainable and cost-efficient financing for commodity traders. When traders aim to increase their business volumes hence the need for additional financing, they also typically aim to reduce the cost of funding. The transactional nature of CTF eliminates cash constraint by enhancing working capital cycles that help achieve increased liquidity and reduced funding cost.
A Holistic Banking Relationship
Having a good understanding of any business and the dynamics of the ecosystem it belongs to is fundamental. Especially in employing a holistic banking relationship for CTF. This, in turn, diversifies the source of funding that’s crucial for traders today. Commodity traders that have financial activity focused only on regional banks can take advantage of this since it enables them to expand their financial capabilities. Therefore, businesses can thrive in their existing markets and gradually move into new locations.
Today, traders are well-equipped with knowledge about global banking facilities for extensive international activities. In such cases, introducing a niche-specific solution, such as a custom pre-export facility in their sourcing country, will enable them to develop an efficient facility. This also helps to secure and source products to grow their businesses. While new businesses demand delicate and diversified banking relationships, a holistic approach ensures that these relationships are properly established. This will help mitigate risks while also driving competitive advantage.
Understanding The Business
There are several sources to fund commodity trading, each with varied advantages and disadvantages. This includes banks that cater to commodity financing, alternative financing vehicles, private funds, and obviously the equity of the shareholders. To properly provide a diverse source of funding, identifying a business’ needs is the first step. This is done through profiling. When a business profile is established, so is its structure and position. This enables a trader to grab opportunities and mitigate challenges in the future.
Determining Needs and Formulating Solutions
A trader’s needs vary depending on many factors including financial confidence, ambitions for expansion, and exploring new market options. Part of determining the needs of a commodity trader is going through future funding plans and comparing them against global standards to warrant stability and sustainability. Additionally, conducting a thorough evaluation of a trader’s financing sources will determine whether or not additional funding is needed. Similarly, depending on a trader’s need, new financiers and territories are determined. This is done to expand the trader’s business as well as introduce flexible facilities to provide optimum costs and collateral structures.
Implementation of Strategy
After identifying the needs of a trader and formulating tailored solutions to the challenges at hand, the next step will be implementing these in collaboration with trusted and credible partners from multiple industries across different jurisdictions from around the globe. Transparency is important in the implementation of any solution, which is why traders -our clients- are given a full insight into the entire process.
Sustainability Through Support Utilization
Sustainability is a continuous process of support to ensure smooth integration between the trader and financers. It is achieved through constant coordination and collaboration. In such cases, understanding the dynamics of the commodity ecosystem will help traders comply with the benchmarks and requirements needed to achieve stability in the commodity market. And with holistic banking relationships, business continuity can be ensured through identifying new markets and products as well as new operating and financing models.