Trade Finance for UK Businesses: Types, Costs and How It Works

You use trade finance to bridge the cash gap in a supply chain. When you have to pay your supplier in Shenzhen before the container even leaves port, or buy raw steel before you can invoice anyone, that’s the gap it closes. What makes it trade finance rather than a loan is that it attaches to an identifiable transaction, and the lender prices the deal as much as it prices you.

Several products sit under the one label. We group letters of credit, import and trade loans, purchase order finance, supply chain finance and stock finance together because they share that focus on the transaction rather than on your cash flow in general. It works on domestic supply chains too, not only on imports and exports. Export finance is the exporter-specific corner of the same umbrella, and it is the corner where UK Export Finance backing becomes relevant.

Trade Finance at a Glance

Which instrument you need depends on where in the trade cycle your money runs out. Having to pay a supplier before shipment points one way. Cash already sitting in a warehouse full of unsold stock points somewhere else entirely. We have set the table out by stage, so you can see what each product does, when in the cycle it applies and the risk it exists to deal with.

Two of those rows are not finance at all. Export credit insurance and a bond both transfer risk; neither puts money in your account. Mixing the two up is an expensive category error, because a business that buys cover when it needed cash is still short of the money and now paying a premium as well.

The two providers listed at the top of this page, iwoca and Funding Circle, are not trade finance houses either. They lend general working capital, which can close the same gap where the sums are modest and speed matters more than structure. We list them as alternatives on that basis, not as substitutes for a documentary facility.

How Trade Finance Works

Every product on this page attaches to one point on the same line: purchase order, supplier deposit, production, shipment, goods arrive, goods sell, invoice raised, customer pays. Your funding gap is the distance between the money going out and the money coming back, and the length of that gap is what a lender is really pricing. Map your own transaction against the stages below before you talk to anybody, because the answer to “which product?” falls out of it.

Financing an import. Take a £100,000 order from a supplier in Vietnam that will not ship without security of payment. Your bank issues a letter of credit, so the supplier loads the container knowing it gets paid once its documents match what the credit demands. When those documents arrive and comply, the bank pays the supplier and either debits your account or rolls the amount into an import loan. You then have 90 or 120 days to clear the goods, sell them and repay. Your own cash never has to leave the account at the moment the container leaves the port, which is the whole point of the exercise.

Financing an export. Exporting reverses the problem, and you become the one waiting. You have to buy materials and produce before an overseas buyer pays, and that buyer may want 60 or 90 days of credit before it will place the order at all. Pre-shipment funding covers the production run; post-shipment funding or invoice finance covers the wait after the goods have gone. Where a commercial lender will not carry the whole risk on its own book, UK Export Finance can guarantee up to 80% of it, and that guarantee is frequently what turns a refusal into an offer.

Who gets paid, and when. The money does not always reach you, and that catches people out. Under a letter of credit or a purchase order facility the lender usually pays your supplier direct, which is deliberate: it keeps the funds tied to the goods rather than to your general account. Under an import loan or a stock facility, the drawing lands with you. The distinction matters most at the border, because import VAT, duty and freight are rarely inside the facility and still have to come out of your own money on the day the goods clear.

Types of Trade Finance

Most of these products come in cheaper than an unsecured loan of the same size, and we rate that as the real reason to use them: the lender is looking at your buyer and your goods as well as at your accounts. What follows is the detail that actually changes a decision: what each instrument protects, what it costs to run, and the point at which it stops being the right tool.

Letters of credit

A letter of credit is the buyer’s bank promising the seller’s bank that payment will be made against a specified set of documents. The seller ships, presents the documents, and if they comply the bank pays. You will meet them most often on high-value international deals where the two parties have never traded together, or where the buyer’s country carries a risk that neither side wants to absorb alone.

For a frequent importer, a revolving facility spreads the set-up cost across many transactions rather than loading it onto one. We rate the letter of credit as the safest route open to you when you do not yet know the counterparty.

Most credits state that they are subject to the International Chamber of Commerce’s UCP 600 rules, and Article 1 makes that the trigger: the rules apply when the text of the credit expressly indicates that it is subject to them. They govern documentary practice where they are adopted. They do not replace the law that applies to the underlying sale contract, and they do not turn the bank into a referee on the goods.

UCP 600 Article 5 is blunt about the reason: banks deal with documents and not with goods, services or performance. If the paperwork is perfect and the container is full of the wrong thing, the bank still pays, and your argument is with your supplier rather than with the bank. We rate that as the most misunderstood feature of the instrument, and it is why naming an independent inspection certificate as a required document, before you agree the terms, is worth more to you than any amount of correspondence afterwards.

Import and trade loans

An import loan is short-term borrowing tied to one purchase. We checked HSBC’s own product page, which calls its version a buyer loan and describes it as short-term, trade-related working capital for international purchases on a pre-shipment or post-shipment basis, with the bank paying your supplier against invoices and transport documents. The tenor is set to your trade cycle rather than to a calendar quarter, so the repayment date tracks when the goods should have sold. If they sit longer than that, you pay to extend and the interest keeps running, which is where importers carrying slow-moving lines get caught out.

Purchase order finance

Purchase order finance funds an order you have won but cannot pay for. The lender advances against a confirmed order and usually pays your supplier direct; your customer then pays the invoice and the lender takes its money from the proceeds. It answers a specific and painful problem. A distributor lands a supermarket contract, cannot fund the first delivery run out of cash, and needs the goods moving now for a payment that arrives 60 days after delivery.

It is also the most expensive route on this page, because the lender is financing production that has not happened yet. Pricing is negotiated deal by deal rather than published, and we could not find a defensible source for a market-wide purchase order finance rate, so treat any percentage quoted online as marketing rather than evidence. Ask each provider for the fee in pounds against your actual order, then set it against the gross margin on that order. If the fee eats the margin, the honest answer is that the order is not worth taking at that price.

Supply chain finance

Supply chain finance, also called reverse factoring, flips the relationship. Instead of the supplier waiting 60 or 90 days for a large buyer to pay, the buyer’s bank pays that supplier early at a modest discount, and the buyer settles with the bank later. The early payment is priced off the buyer’s credit rating rather than the supplier’s own, which is why it usually beats anything a small supplier could arrange for itself.

Large buyers run these programmes as a treasury function and you have to be invited on. If you supply a major corporate, we rate getting onto its scheme as worth chasing properly rather than mentioning once and letting it drop. UKEF runs a version of the same idea through its Supply Chain Discount Guarantee, which supports supplier liquidity against invoices the buyer has already approved.

Stock and inventory finance

Stock finance lets you borrow against inventory you already hold, through a revolving facility that is drawn as you buy and repaid as the goods sell. The stock itself is the security, so your credit limit tracks the value of what you are carrying and your headroom moves with the season. It suits businesses that have to hold real inventory to trade at all: distributors, wholesalers, a retailer building towards the Christmas peak, a manufacturer keeping a raw-material buffer.

Expect regular stock audits, because the lender is protecting security it cannot see from an office. Slow-moving, obsolete or highly specialised stock attracts restricted advance rates for the same reason. A pallet of last season’s branded goods is worth far less to a lender forced to sell it than it is on your own balance sheet, and the advance rate is where that difference shows up. We rate the advance rate as the term to argue over rather than the margin, because it decides how much cash the facility actually releases.

Export credit insurance

Export credit insurance is not funding. It pays out if your overseas buyer does not, protecting the receivable rather than filling the gap before the receivable exists. UKEF’s Export Insurance Policy covers up to 95% of potential losses against buyer insolvency, failure to pay, and political, economic or administrative events that stop money leaving a country. Cover is restricted to buyers in emerging and developing markets on UKEF’s approved country list, and at least 20% of the export value has to be UK goods or services.

Insurance and finance often travel together, and we rate the premium as buying funding as well as protection. A lender that can see the receivable is insured will usually advance more against it.

Bonds and guarantees

A bond is your bank standing behind you rather than lending to you. An advance payment bond lets a buyer release a deposit knowing it can claw the money back if you fail to deliver; a performance bond does the same job for the contract itself. Neither puts cash in your account, and both consume facility headroom while they are outstanding. That is easy to underestimate when pricing a bid, and the bonding line can swallow the room you were relying on for the next order.

How Much Does Trade Finance Cost?

There is no single trade finance rate, and any site that hands you one has made it up. What you pay is a stack: a fee to set the facility up, a commission on the instrument itself, per-message and handling charges, interest on anything actually drawn, and an exchange rate margin if the deal settles in another currency. We have costed that stack against a published bank tariff below, so you can see its real shape instead of an invented average.

What you are actually paying for

Facility arrangement fee. A one-off percentage of the facility when it is first set up, usually with a lower percentage on renewal. It is charged on the facility, not on each transaction, so it hurts most on a single deal and least on a facility you use repeatedly.

Instrument commission. The charge for issuing a letter of credit or a guarantee, normally quoted per month of validity rather than as a flat rate. A credit with a long expiry costs more than a short one for exactly the same value of goods, which is a reason to keep validity periods tight.

Handling, messaging and courier. The bank charges for examining each presentation, for every SWIFT message it sends, and for physically couriering documents. Individually small, collectively not.

Interest. Charged on funds you have actually drawn, at a margin negotiated with you rather than published in a tariff.

Exchange rate margin. The spread applied when the deal converts currency. This is the one nobody itemises and everybody pays.

A worked £100,000 import letter of credit

The figures below come from HSBC’s published Trade Services and Guarantees Standard Price List, effective 3 June 2024, which we checked on 17 August 2026. HSBC states that its prices exclude VAT. We use HSBC because it publishes the schedule, not because it is representative: this is one bank’s tariff and not a UK market average. HSBC’s own document says the letter of credit fee is subject to review of your risk profile, the purpose of the issue and the tenor of the transaction.

The assumptions are a new £100,000 trade facility, one import letter of credit for £100,000 with 90 days’ validity, four SWIFT messages, a single presentation of documents that comply first time, and one international courier.

On a £100,000 order that is 1.86% of the value in bank charges, before a penny of interest and before any exchange rate cost. Strip out the arrangement fee, which is a one-off on the facility rather than a charge on each deal, and the transaction itself costs £605. Renew that facility the following year at 1.00% instead of 1.25% and the running cost falls again. The arithmetic is why a business doing one import a year and a business doing twelve should not be quoted the same way, and why a single-transaction quote can look alarming next to a facility that will be used properly.

Two charges sit outside that total because they only arrive when something goes wrong. An amendment costs £60 per request under the same schedule. If your documents do not comply, HSBC charges £50 per set plus a £20 message fee to tell the presenting bank about the discrepancies. First presentations are discrepant more often than importers expect, and that is precisely why the experienced ones pay a freight forwarder to check the paperwork before it goes near a bank.

What a published tariff will not tell you

Three costs sit outside the schedule entirely, and they are the ones we check first on any quote. Interest on drawn funds is quoted customer by customer, and HSBC’s list says as much: available on application or as agreed in your facility letter. Correspondent bank charges are set by the other bank in the chain and can land on either side depending on how the credit is worded, so settle who pays them in the contract rather than finding out from a debit advice.

The third is the one that should worry you most. On a foreign currency deal, the exchange rate margin is a percentage of the whole £100,000, not a fee on a document, and it can comfortably exceed every charge in the table put together. Businesses interrogate the letter of credit commission to two decimal places and accept whatever rate the bank offers on the conversion. That is the wrong way round, and we rate the exchange rate as the first line to negotiate on any cross-currency facility.

Which Type of Trade Finance Fits Your Transaction?

Find the row that matches your situation. We built the table around the three questions that decide almost every case: whether you are buying or selling, whether you have a confirmed order, and whether an invoice already exists.

The last row is the one worth reading twice. If you cannot point at the transaction, trade finance is the wrong shelf, and forcing the fit will cost you more than the general facility you actually needed. That is where the overpaying happens, usually because trade finance looked cheaper on a rate comparison that ignored the fee stack.

Trade Finance Eligibility

Lenders look at the deal as hard as they look at you, and on some products harder. For a letter of credit or purchase order finance, a creditworthy buyer and a confirmed order carry real weight. For supply chain finance, the large buyer’s credit is the entire basis of the pricing. That is a different test from invoice finance, which leans on the quality and spread of your debtor book.

What lenders assess

• A confirmed order or contract, or established trade flows you can evidence
• Who your buyer and your supplier are, and how they have performed before
• The gross margin on the transaction, and whether it survives the cost of funding
• Your accounts, your cash flow and any existing debt or security already given
• The goods themselves, the sector, and how readily the stock could be resold
• The countries and currencies involved, and the route the goods take
• Know-your-customer, anti-money-laundering and sanctions screening on every party

Trading history matters, but we found no universal threshold, and the two-year figure repeated across comparison sites is not one. Requirements vary by lender and by facility. A first-time importer with a confirmed order from a strong buyer can be a better risk than an established business with a weak one, and specialist trade lenders price that differently from a high street bank. Ask each provider what its own minimum is, in writing, before you assume you fail it.

Documents you will be asked for

• Purchase orders and the sales contract
• Supplier invoices and, where the goods have moved, transport documents
• Customer invoices and your terms of sale
• Filed accounts, management figures and recent bank statements
• A cash-flow forecast covering the trade cycle you are funding
• Buyer and supplier details, including how long you have traded with each
• Company identification and director identification for KYC

Security, debentures and personal guarantees

Whether you have to sign a personal guarantee depends on the lender and the facility rather than on trade finance as a category, so treat any blanket claim about it with suspicion. What is not in doubt is where these facilities sit. Lending to a limited company falls outside the FCA’s remit, and the FCA has itself observed that the requirement for personal guarantees is more common in unregulated business lending, particularly lending to limited companies.

Read the guarantee before you read the rate. It is the first term I check on any trade facility, because it is the only one that reaches past the company and into your own name. A guarantee puts your house and your savings behind a container of goods you have never seen, loaded by a supplier you may never meet, and no saving on the margin compensates for that if the deal goes wrong. Ask whether the guarantee is capped, whether it falls away once the transaction settles, and whether a debenture over the company would satisfy the lender instead.

UK Export Finance Support

UK Export Finance is the government’s export credit agency, and the thing to understand first is that it does not lend to you. It guarantees your bank, and that guarantee is what makes a lender say yes to a deal it would otherwise decline. UKEF provided £11.2 billion of new loans, insurance and guarantees in the 2025 to 2026 financial year, according to its published economic impact figures. We checked every scheme fact below against UKEF and GOV.UK material on 17 August 2026, and these terms do change.

General Export Facility

The General Export Facility is the broadest scheme, and the useful part is that it is not tied to a single export contract. UKEF guarantees up to 80% of the facility, which can be a cash facility such as a trade loan or a contingent one such as a bonding or letter of credit line. It supports facilities worth up to around £25 million, with repayment terms of up to five years, and exporters do not have to evidence individual export contracts to use it.

Qualifying means clearing one of two export-sales tests: either at least 20% of your annual turnover came from UK export sales in one of the last three financial years, or at least 5% did in each of the last three. You also need UK premises and UK employees, you must pay UK, Isle of Man or Channel Islands National Insurance or Corporation Tax, and you must make the goods or deliver the services from the UK. We rate those two tests as the first thing to check against your own filed figures, before you spend a week on an application.

Export Working Capital Scheme

Where the General Export Facility is deliberately unattached, this scheme is the opposite. It guarantees up to 80% of the credit risk on a working capital facility linked to a specific export contract, covering both the pre-shipment and post-shipment stages. UKEF sets no minimum or maximum value on the facility itself. You need to be operating from the UK, the Isle of Man or the Channel Islands, and to have entered into, or be intending to enter into, a contract to supply goods or services to an overseas buyer.

Export Insurance Policy

Where commercial insurers will not write the risk, UKEF’s Export Insurance Policy covers up to 95% of potential losses. It is aimed at buyers in emerging and developing markets that appear on UKEF’s approved country list, and at least 20% of the export value must come from UK goods or services, including your profit margin. It sits alongside funding rather than replacing it.

The joint scheme coming in 2027

A joint UK Export Finance and British Business Bank scheme for smaller exporters was announced on 12 July 2026 and is due to launch in spring 2027. It targets the gap this page keeps colliding with: SMEs wanting lower-value working capital loans, where the individual deal is too small for the existing schemes to reach economically. UKEF will guarantee a share of losses at portfolio level while the British Business Bank onboards and manages the participating lenders. It is not open yet, so do not build a funding plan around it.

Trade Finance vs Other Business Finance

Trade finance vs invoice finance

The dividing line is the invoice. Trade finance works before and around the point where you pay a supplier and move the goods. Invoice finance generally begins after you have delivered and raised an eligible invoice, advancing against the debt your customer now owes you. They are sequential rather than competing, and plenty of importers run both: trade finance to buy the goods, invoice finance to bridge the wait once those goods have been sold on.

Trade finance vs working capital lending

Reach for trade finance when the gap is tied to a specific deal: an import order, a confirmed contract, a stock buy with a clear sell-through. The instrument matches the money to the transaction and prices off its risk. Reach instead for general working capital, an overdraft or a revolving credit facility, when the gap is diffuse: a run of slow-paying customers, a seasonal dip, payroll in a thin month. Match the instrument to the shape of the gap, and the rate tends to look after itself.

Trade finance vs trade credit

Trade credit is not finance at all, and the two get confused because the words look alike. Trade credit is simply your supplier agreeing to wait, on 30 or 60 day terms, with no lender in the middle and nothing to arrange.

It is the cheapest funding you will ever be offered, and the first thing we tell anyone to ask for. Trade finance is what you use when the supplier will not give you terms, or when the terms on offer are shorter than your cash cycle can survive. If you want to protect the receivable at the other end of the deal, trade credit insurance is a separate product again.

Risks, Regulation and Legal Protection

Is trade finance FCA regulated?

Usually not, and the answer turns on who is borrowing rather than on the product name. The FCA’s stated position is that lending to limited companies, limited liability partnerships and partnerships of more than three people sits outside its remit, and that business lending of more than £25,000 is also out of scope. Most trade finance therefore sits in unregulated commercial lending. Where the borrower is a sole trader or a small partnership taking £25,000 or less, that flips, and the agreement can be regulated credit with the protections that brings.

Can you complain to the Financial Ombudsman?

Often, yes. The claim that business lending carries no Ombudsman route is repeated across this market, and this page itself used to make it. It is wrong. The FCA’s complaint-handling rules place lending money inside the Ombudsman’s compulsory jurisdiction alongside regulated activities, together with ancillary activities carried on in connection with them. A facility being unregulated does not by itself put a complaint about it out of reach. We read those rules directly rather than relying on a summary, because this is the claim the market most often gets wrong.

What you do have to be is an eligible complainant. Under the FCA’s definitions, a small business qualifies where it has annual turnover of less than £6.5 million and either fewer than 50 employees or a balance sheet total of less than £5 million; a micro-enterprise qualifies on a smaller test again. The FCA’s own estimate is that about 99% of UK small businesses can bring a complaint to the Financial Ombudsman Service. Measure your own turnover and balance sheet against those tests instead of assuming the door is shut.

The Financial Services Compensation Scheme is a separate question, and here the cautious reading holds. FSCS covers deposits and certain regulated products. It does not stand behind a business loan that goes wrong, and no trade facility on this page comes with that protection.

UCP 600 and documentary risk

The rules only bind the credit that adopts them, and they only reach as far as the documents. UCP 600 applies where the credit expressly indicates that it is subject to the rules, and it governs documentary practice rather than the underlying sale contract, which stays with whatever law that contract names. Build your protection into the document list, because the document list is the only place the bank is looking.

Electronic trade documents

The Electronic Trade Documents Act 2023 came into force on 20 September 2023 and closed a gap that had been open for well over a century. A qualifying electronic trade document now has the same effect as its paper equivalent, and it can be possessed, endorsed and transferred in the same way. The Act reaches the documents trade finance actually runs on: bills of exchange, bills of lading, promissory notes, warehouse receipts, mate’s receipts, ship’s delivery orders, marine insurance policies and cargo insurance certificates.

Take-up is uneven in practice, because your bank and your carrier both have to be set up for it before it helps you. Ask anyway. The saving is not the paper and the postage. It is the days a container spends sitting at a port while an original bill of lading travels the world in a courier bag.

Country, sanctions and counterparty risk

Your lender will screen the countries, the parties and sometimes the vessel before it funds anything, and a facility that is otherwise agreed can stall at exactly that point. Sanctions positions move faster than facility agreements do, so a route that funded a shipment last year will not necessarily fund one this year.

Price four risks separately: whether the buyer can pay, whether the supplier can perform, what the exchange rate does between now and settlement, and whether money can physically leave the buyer’s country. Credit insurance can cover the first and the last. Nothing on this page covers the second, which is why the supplier due diligence stays your job.

How to Apply for Trade Finance

Applications go faster when you arrive with the transaction already defined, because the lender is underwriting the deal rather than a general limit. Work through it in this order.

1. Define the transaction and the gap: what you are buying or selling, for how much, and the exact dates money goes out and comes back.
2. Gather the order or contract, supplier and buyer details, filed accounts, management figures and a cash-flow forecast covering the cycle.
3. Identify the likely instrument from the decision table above, so you are asking providers to price the same thing.
4. Compare provider fit and total cost, not headline rate, using the checklist below.
5. Complete KYC, anti-money-laundering and credit assessment on every party to the deal.
6. Review the security, recourse, conditions and document requirements before you sign anything.
7. Draw the facility against the transaction and repay from the proceeds it was structured around.

Compare more than one route while you are at it. A clearing bank, a specialist trade finance house and a broker will structure the same transaction differently, and the cheapest headline rate is rarely the cheapest total once the fee stack above is added back in. That is why our checklist asks for fees in pounds rather than percentages. Tide Funding Options will put a trade or working capital enquiry in front of several lenders from one application, and checking is a soft search.

What to compare on each quote

• Facility limit, minimum drawing and whether the limit revolves
• Term, and what actually triggers repayment
• Interest margin, and how and when it is charged
• Arrangement and renewal fees, in pounds on your facility size
• Instrument commissions, presentation and handling fees
• SWIFT, courier and correspondent bank charges, and who bears them
• Exchange rate margin on any currency conversion
• Security taken: debenture, personal guarantee, and whether either is capped
• Buyer and supplier eligibility, and any country or currency restrictions
• Whether the facility is with recourse to you
• Amendment, extension and early repayment terms
• Documents required at drawdown, and who receives the funds
• Realistic time from application to drawdown

Trade Finance FAQs