Last month we told you about “last mile financing” in the mining arena. This is, you will recall, bridging the gap between when miners normally need to be paid, and when the trader can cash the letter of credit once the cargo has been loaded. We had a number of responses to this message, and have found there is particular interest in shipping, for example, iron ore or manganese ore from Mexico and other spots in Latin America. We have already closed one such relationship, and expect to complete several other fundings over the next few weeks. This particular finance structure is suitable for the industrial ores, but you should not think of it as being usable for precious metals like gold or silver.
Because our partners have expertise in Central and South America, this opens the door to another type of finance in that region. In those cases where a Latin American company is selling to a creditworthy customer in the United States, we may be able to allow finance for Latin clients against their invoices to United States customers. If you or your contacts would find this useful, get in touch.
We also have access to a facility for discounting standby letters of credit. Simply put, if a legitimate confirmed standby can be issued, we can assist in structuring the SBLC so that it can be discounted, i. e., a meaningful part of its cash value can be realized prior to its exercise period, usually a year in the future.
We hear about SBLC leasing from time to time, but we’ve not participated in one. In the cases where we’ve spoken to sources who indicate that they lease, we understood that the lessee bank had to commit to return the instrument at the end of the lease period, which would mean that borrowings against the SBLC would have to be returned prior to SBLC expiration. This requirement would be inappropriate for the SBLC discounting structure we can provide.
It seems like the most obvious thing in the world, but structure is everything in trade finance. It comes naturally to us, perhaps because of our time on Wall Street during which we ran a convertible arbitrage hedge fund (If you don’t already know what these are, don’t ask. It would take too long to explain.). In the simplest terms, here’s what we need to assist in financing a deal: credible buyer, secure buyer payment structure, credible supplier, acceptable supplier payment requirement.
There are myriad permutations of that simple basic deal structure, but in simple terms, that’s about it. Seems easy, no doubt. And it should be, although often, it isn’t.
So if you do look for finance based on deals you’ve put together, keep in mind that your funding partner prefers not to lose money, which will often account for their requirements while putting a deal together.
Usually, the client also benefits from the care taken on the finance side.