Trade finance is funding tied to a single trade rather than to your business. A bank or specialist lender pays your supplier, or guarantees that they will be paid, and gets its money back when your customer pays you. That one structural fact decides everything else: why the paperwork is heavy, why it is priced as a stack of fees rather than as a rate, why it has a maturity date set by the shipment, and why it is no use at all for a tax bill.

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Trade finance can bridge the gap between paying suppliers and getting paid

If you need to pay for goods before your customer pays you, trade finance can help fund that gap. A trade loan may cover supplier payments, stock or the costs of fulfilling a contract. It can support UK trade as well as imports and exports.

The arrangement depends on the product. Some facilities fund a specific contract; others support regular purchases through a revolving facility. Trade finance also includes tools such as letters of credit and guarantees, so it is not always a cash loan.

Before applying, check what the facility can fund, how payments are made and when you must repay. Plan for delays in delivery or customer payment rather than assuming the transaction will clear the borrowing on schedule.

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Five instruments, and the worry each one answers

The instruments are not competing versions of the same thing, which is how most lists of them read. Each one answers a different worry, so the quickest route to the right product is to name yours.

A letter of credit is the one people reach for first and understand least. It pays against paperwork, not against goods: once issued it is legally binding and irrevocable, and the bank checks the bill of lading, the invoice, and the certificate of origin against the credit's exact wording. Get a date or a description wrong and the bank can refuse the documents, which stops the payment even though the shipment is fine.

The last row is a different animal, because the risk has already happened by then. Factoring sells the invoice to a factor, who advances most of it and then collects from your customer directly. Forfaiting sells a medium or long-term receivable outright and without recourse, so the forfaiter carries the loss if your customer never pays. Both free up cash after delivery; neither helps you pay the supplier who is waiting now.

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What a trade loan is

Of all the instruments above, this is the one most people are actually looking for. A trade loan is short-term working capital for one trade: sourcing, producing, packaging, and shipping a particular lot of goods. It can run as a revolving facility you draw on for regular supplier payments and stock purchases, or sit against a single contract.

Three things make it a different product from a business loan. The money goes to your supplier. You are arranging a payment, not receiving funds, so a trade loan can't cover the costs around a shipment, only the shipment itself.

It matures on the trade cycle rather than on your plan. The lender expects the transaction to have completed and paid by the maturity date, and if it hasn't, you ask for an extension and pay for it: HSBC charges £30 plus interest for the extra period. A delay at a port is therefore a cost, not just a nuisance.

The rate is not published anywhere. HSBC's own tariff puts the interest on a trade loan as 'available on application or as we agree with you in your trade loans facility letter'. You cannot compare trade loans on price before you apply, which is awkward, and worth knowing before you spend three weeks on an application.

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How a trade finance transaction runs

Most of the sequence is the same whichever instrument you use, because the documents are what moves the money. Taking a letter of credit as the example:

1. You and your supplier agree the terms of the sale, including the payment terms, the delivery conditions, and which instrument you'll use.
2. Your bank issues the letter of credit or the guarantee, which gives your supplier the security they asked for.
3. Your supplier ships the goods and presents the documents: the bill of lading, the invoice, and whatever else the credit specifies.
4. Your bank checks the documents against the credit and releases the payment.
5. You repay the bank on the agreed terms, and the transaction closes.

Step 4 is where transactions often go wrong. The bank is checking paperwork against wording, not quality against expectation, so a mismatch in a date, a quantity, or a description of the goods is enough to stop a payment that everybody agrees is due. For example, HSBC charges £50 a set for handling non-complying documents, plus £20 to tell the presenting bank what the problem was. Your supplier's bank will charge for its side too, and meanwhile the goods are sitting somewhere.

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What it costs, and why nobody will quote you a rate

Trade finance is not priced as an interest rate, which is why comparing it with a business overdraft is harder than it looks. You pay a fee to set the facility up, a commission for each instrument based on its value and how long it runs, a handling charge every time documents are presented, and interest on top of that if there's a loan involved. HSBC publishes its UK tariff, so the shape is public:

Those figures are from the price list dated 3 June 2024, and they exclude VAT.

Work it through on an illustrative £100,000 import letter of credit that you only need for two months. The three-month minimum still applies, so the opening commission is £375 rather than £250. Presentation handling adds £125. A clean transaction therefore costs about £500 before VAT, before interest, and before the 1.25% facility fee. One amendment and one set of discrepant documents take it to about £630.

What you can't work out is the total, and HSBC says so itself: 'It can be difficult to predict the total charges that apply to a transaction', because it depends on 'the number of banks involved, the roles the banks have in the transaction, and what happens in the transaction'. The price list also notes that it covers only HSBC's charges, and that other banks in the chain will apply their own.

So if you came here looking for a rate range or a timescale, there isn't an honest one to give you. No UK bank publishes the interest on a trade loan, and we would rather say that than repeat a range from a broker's blog.

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Whether you'll be approved, and what you'll have to sign

About two in five small business applications are turned down, though the picture is improving: the Asian Development Bank's latest Global Trade Finance Gap Survey, published on 15 January 2026, found 41% of small business applications were rejected, against 40% for large and mid-cap companies. That is the first time the two rates have been close, and more than 80% of the banks surveyed now say they have a dedicated strategy for smaller customers.

The reason for those declines isn't that the lending is risky. The International Chamber of Commerce, which writes the rules this market runs on, describes trade finance as 'highly structured and historically low risk' on more than a decade of multibank data, and argues that compliance frameworks 'often impose blanket requirements that slow transactions and exclude' smaller companies (ICC, trade finance). The problem is the cost of checking, not the chance of losing money. That distinction matters to you because it tells you what to prepare: not a better story, but better documents.

A lender is underwriting the transaction as much as your company. Expect questions about who your customer is and whether they pay, what the goods are and whether anyone else would buy them, what your margin is once the fees above come out of it, and whether you are carrying the currency movement between paying in dollars and invoicing in pounds.

Then there is what you sign. NatWest's own product terms on trade finance say plainly that 'security may be required', and in practice a trade financier will usually take a debenture over your company's assets, registered as a charge at Companies House where anyone can see it. A personal guarantee from a director is common too. If your bank already holds a debenture, the two lenders have to agree priority between them, which takes legal time nobody budgets for.

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When a business loan is the better tool

Here is the test that saves the most time: is your gap one transaction, or is it your month? Trade finance is built for the first. If you can point at the order, the shipment, and the invoice that will repay it, a trade facility fits, and the instruments above are worth the paperwork.

If you can't, you might be applying for the wrong thing. Buying stock across a season, paying a supplier who won't wait for the facility to be approved, covering the deposit on a container, bridging a tax bill while the money is in transit: none of these attaches to a single trade, so none of them is something a transaction-tied facility can fund. If you're waiting on an invoice, a Flexi-Loan can cover the gap, and you can clear it with no early repayment fee once your customer pays.

Four mechanics matter when the problem is timing. The money arrives in your account rather than your supplier's, so you decide what it pays for. Interest runs on the amount you draw, not the full limit, so agreeing a facility bigger than this month's shortfall costs nothing extra. You have 30 days to draw down after approval, so it can be in place before you commit to an order. And because there's no fee for repaying early, it can be open for one trade cycle instead of a year.

This bites hardest on a particular kind of company: the one whose order is real and whose buyer is excellent, but whose trading history is too short for a bank's trade desk to price. The order is the thing a trade facility is supposed to make possible, and it is the reason the facility gets declined.

Flexi-Loan in action: JBN Beverages

When Janet Theodore signed contracts with Sysco and Tesco.com, she needed to finish product testing and buy ingredients before a bottle could ship. High street banks and financial institutions said they could fund it and then couldn't. An iwoca loan covered the work ahead of launch, and the listings went live.

'We tried so many people, high street banks and financial institutions. They would say they could do it, then they couldn't. Everyone was saying no.'

One thing a loan from us won't do, and it's the reason the instruments above exist. It won't make an overseas customer pay, and it is not a letter of credit, a bond, or credit insurance. If your worry is whether the money arrives at all rather than when, go back to the table and pick the instrument that covers that risk. Borrowing against an invoice you may never collect makes the problem bigger, not smaller.

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What a Flexi-Loan costs and what you're signing up to

You can borrow £1,000 to £1m over a fixed term of between 12 months and five years, so you know the repayment schedule from the outset. Because there's no fee for repaying early, you can clear it as soon as the cash arrives, and many of our customers only take out our finance for a few weeks, or even days.

Feel free to use our business loan calculator to estimate your repayments and overall cost of the facility.

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