Trade finance is the family of facilities that pay your suppliers before your customers pay you. If your business buys stock, components or finished goods, and there is a gap between paying for them and selling them, trade finance exists to bridge exactly that gap.
It is one of the least understood corners of business finance, partly because the products hide behind near-interchangeable names: trade finance, import finance, stock funding, inventory finance, purchase order finance. This guide explains what they have in common, how they differ, and how to work out whether one fits your next order.
Section 01
What trade finance actually does
Every trade facility follows the same shape. A lender pays your supplier, or reimburses you, for goods you have ordered. The goods ship and sell, and the facility is repaid from the proceeds. The security is primarily the transaction itself: the order, the stock, and the money it will become.
That is the crucial difference from a term loan. A term loan is underwritten on your accounts and repaid in fixed instalments whether the stock sells or not. A trade facility is underwritten on the deal and repays as the deal completes. When the purpose of the money is stock, matching the facility to the transaction usually beats borrowing a lump sum.
Section 03
Trade finance and invoice finance are not rivals
The two are often confused, and they often work best together. Invoice finance releases cash from sales you have already made; trade finance funds purchases you have not yet sold. A stock cycle has two gaps: the gap between paying your supplier and selling the goods, then the gap between invoicing your customer and being paid. Trade finance covers the first, invoice finance the second, and combined structures cover the whole cycle in one facility.
If your pinch point is unpaid invoices rather than upcoming stock purchases, invoice finance alone may be the simpler answer. If it is both, say so up front: structuring them together is cheaper and cleaner than bolting one onto the other later.
Section 04
What it costs, and what lenders ask for
Pricing varies by lender, transaction risk and term, and it rarely arrives as one headline APR. Expect a facility fee plus a charge per funded transaction. The only honest comparison between two offers is to work each one into pounds over the full cycle, from supplier payment to customer receipt.
Underwriting is refreshingly practical. Lenders will want the order or contract, the supplier details, the gross margin on the transaction, and evidence the stock will sell: sales history for repeat lines, confirmed orders for new ones. Trading history matters less than transaction quality, which is why businesses declined on their headline accounts still get trade deals funded. We cover that in
when your accounts don't tell the story, and the supplier-side half of the picture in
consignment stock and supplier finance.
bizbritain arranges trade, stock and import finance as part of its growth finance panel of 100+ lenders. Tell us about the order on the
business growth loans page and an advisor will come back the same working day with the structures that fit.