Overview of trade finance and working capital loans.
Trade finance generally refers to financing individual, self-liquidating transactions. Self-liquidating means the bank collects payment for the transaction it has helped to finance. This is used to redeem the money lent to the exporter. The remainder is credited to the exporter's account.
Pre-shipment financing is granted to the exporter to enable him to cover costs of manufacturing or shipment.
Working capital loans, which are associated with pre-shipment financing, are designed to cover more long-term operating costs related to a sales order or contract, specifically in the areas of labor, materials and inventory.
Lenders also engage in Post-shipment financing where a bank or government agency extends a cash advance to the exporter against the security of billing instruments representing the goods shipped, pending payment by the importer.
It is recommended that promotion financing, such as that needed to attend trade shows, come from the working capital of the firm.
Some US government sites with more information are: