Introduction to trade finance
Produced in partnership with Sullivan

The following Banking & Finance practice note produced in partnership with Sullivan provides comprehensive and up to date legal information covering:

  • Introduction to trade finance
  • Introduction
  • What is trade finance?
  • Letters of Credit
  • What are they?
  • Bank’s roles in a letter of credit
  • UCP 600
  • International Standard Banking Practice for the Examination of Documents under UCP 600
  • Acceptance and rejection of documents presented under an LC
  • Different types of letters of credit
  • More...

Introduction to trade finance

Coronavirus (COVID-19): For information on the implications of coronavirus on trade and commodity finance transactions, see Practice Note: Coronavirus (COVID-19)—implications for trade and commodity finance transactions.


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: 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), but without a secured loan facility. This Practice Note will consider the main 'unstructured' forms used for trade finance, namely, letters of credit, demand guarantees, bills of

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