What trade financing covers, and where it stops
Trade financing pays for goods before your customer pays you. It funds the gap between committing to a supplier and collecting the money from the sale: the deposit a new overseas supplier wants, the stock sitting in your warehouse, the bond a tender asks you to post. Most facilities are short-term and tied to a specific shipment or contract, and repay themselves as the goods are sold.
It stops at the invoice. Once you have delivered and billed your customer, the money tied up is a receivable, and that is a different tool. If your problem is customers who take 60 or 90 days to pay, our factoring and invoice discounting page is the one you need. This page covers everything before that point: buying, importing, holding stock and securing contracts.
We are a broker, not a lender. We match your trade cycle to the right instrument and the right lender, prepare the application, and stay with it through approval. Because we also keep the books for many of our clients, we size the facility against your real numbers rather than a rule of thumb.
The instruments, matched to the problem they solve
Most trade finance confusion comes from treating these as interchangeable. They are not. Each one answers a different question, and the wrong choice either costs more than it should or fails at the moment you need it.
Compare all six instruments in one table
| Instrument | Use it when | How long it runs | How it is charged |
|---|---|---|---|
| Sight letter of credit | A new or overseas supplier wants a bank’s promise of payment before it ships | Paid when compliant shipping documents are presented | Commission on the LC value, with a minimum per LC, plus amendment fees |
| Usance letter of credit | The supplier will give you credit terms, but only with a bank standing behind them | Paid at the end of the agreed usance period | Issuance commission plus an acceptance commission for the credit period |
| Trust receipt | The bank has paid your supplier, and you need the goods released so you can sell them | A fixed tenor set by the bank, repaid from your sales | Interest at the rate agreed in your facility, plus a handling commission |
| Bank guarantee or standby LC | A tender, contract, landlord or supplier needs security that you will perform or pay | The validity period written into the guarantee | Commission per year on the guaranteed amount, by guarantee type and length |
| Documentary collection (D/P or D/A) | You trust the supplier and want something cheaper than an LC, with banks handling the documents | On presentation (D/P) or at the bill’s maturity (D/A) | A commission on the bill amount, with a minimum per bill |
| Inventory or pre-delivery working capital | You buy from local suppliers, or need to fund stock and production before delivery, with no LC involved | Short-term and revolving, up to the facility’s maximum tenor | Interest on the amount drawn |
A typical import cycle uses several of these in sequence. The bank issues an LC to your supplier, pays it when the documents arrive, releases the goods to you under a trust receipt, and you repay the trust receipt from what you sell. Seen that way, the question is not which product to choose. It is which steps of your cycle need funding, and for how long.
Letters of credit: sight, usance, and what one really costs
A letter of credit is your bank’s undertaking to pay your supplier, provided the supplier presents documents that comply with the LC’s terms. The bank deals in documents, not goods. It checks the bill of lading, the commercial invoice, the packing list and anything else the LC names, and it pays only if they comply. That is the protection for both sides: the supplier knows it will be paid, and you know the bank will not pay until the shipping evidence is in order.
Sight or usance. Under a sight LC the supplier is paid as soon as compliant documents are presented. Under a usance LC the bank accepts the documents and pays at the end of an agreed credit period, which gives you time to receive and sell the goods first. Usance is how an LC doubles as supplier credit.
Read the detail: the full fees, a worked example and the cheaper alternative
What it costs. Published Singapore bank tariffs, at our last check, put import LC issuance at 1/8 percent of the LC value per month or part of a month, usually with a minimum of two months’ commission (1/4 percent) and a minimum charge of about S$75 to S$100. A usance LC adds an acceptance commission of typically 1/8 percent a month from the LC’s expiry to maturity, again with a minimum of about S$75 to S$100. Increasing an LC’s value is charged at the issuance rate on the extra amount, extending its expiry is charged at 1/8 percent a month on the outstanding balance, and other amendments are typically a flat S$60 to S$100. If the LC is in a foreign currency and you pay it without converting currency, expect a further commission in lieu of exchange of typically 1/8 percent. These are the banks’ standard published rates; a negotiated facility can differ. One published tariff also sets higher fees for facilities under the Enterprise Financing Scheme, so ask for both schedules.
Worked through, a S$50,000 sight LC valid for two months or less costs about S$125 in issuance commission, or 0.25 percent. Make it a 90-day usance LC and the acceptance commission adds up to about S$187.50, taking the two commissions to roughly S$312.50 before any amendments or other charges. The minimums matter more on small shipments: on a S$20,000 LC, two months’ commission is only S$50, so the S$75 to S$100 minimum applies, which is 0.375 to 0.5 percent of the LC value.
A documentary collection is the cheaper alternative where you trust the supplier: published tariffs typically charge 1/8 percent of the bill amount, with a minimum of about S$75 to S$100, and no bank undertaking to pay. If your goods arrive before the shipping documents do, a shipping guarantee lets you take delivery without the original bill of lading. Under the bank’s own LC it is typically a flat S$75 to S$100, and further charges apply if it is not returned within about a month.
Discrepancies are where LCs go wrong. A misspelt name, a late shipment date or a missing certificate lets the bank refuse the documents until the discrepancy is waived, and each refusal costs time and usually a fee. Most of this is preventable by agreeing achievable LC terms with your supplier before the LC is issued, not after.
Trust receipts: the clock that actually limits you
When the bank has paid for your goods, it can release the documents to you against a trust receipt. You take delivery and sell them, but until the trust receipt is repaid you hold the goods, and then the sale proceeds, on the bank’s behalf. It lets you trade the stock without first finding the cash to clear it.
The tenor is the real constraint, not the limit. Every trust receipt has a fixed repayment date. If your stock takes longer to sell than the tenor allows, the trust receipt falls due before the cash comes in, and you repay it from elsewhere or ask the bank to refinance. Neither is a good position to be in month after month.
Read the detail: what a trust receipt costs
Banks do not publish a standard trust receipt interest rate. It is charged at the rate agreed in your facility, and published tariffs add a handling commission of typically 1/8 percent of the amount, with a minimum of about S$75 to S$100. The tenor is also set in your facility letter not in a standard table, so it is open to negotiation, and worth negotiating so that it matches how long your stock actually takes to sell.
This is where your own accounts answer the question. Divide your inventory by your cost of sales and multiply by 365, and you have the number of days your stock actually sits before it sells. If that figure is longer than the trust receipt tenor on offer, the facility does not fit your cycle, however generous the limit looks. If you sell on credit, add your debtor days, because the trust receipt is repaid from the cash you collect, not from the sale itself. We work this out from your books before we approach a bank, because a bank’s credit team will test it too.
Bank guarantees and standby letters of credit
A bank guarantee is the bank’s promise to pay a named beneficiary if you do not pay or perform. Businesses use them for tender bonds, performance bonds on contracts, advance payment guarantees, rental deposits and supplier credit. A standby letter of credit does the same job and is more common in cross-border dealings. In practice the name tends to follow the market and the beneficiary’s preference, and the commercial question is the same: how much, for how long, and on what terms the beneficiary can call it.
Read the detail: the cost, and two things that catch businesses out
What it costs. Guarantee commission is charged per year on the guaranteed amount, for as long as it is outstanding, and it is priced by the type of guarantee and its length. Published Singapore bank tariffs, at our last check, put performance and other non-financial guarantees at about 1 to 1.5 percent a year for terms up to two years and about 1.5 to 1.75 percent beyond two years, and financial guarantees, which secure a payment rather than a performance, from about 2 percent a year. Minimum commissions run from roughly S$100 to S$250. The bank may also ask for cash margin or other security, particularly where your trading history is short.
Two things catch businesses out. First, a guarantee uses up your credit limits even though no cash has moved, so a large performance bond can crowd out the trade line you need for purchases. Second, although a guarantee is not a loan on your balance sheet, your accountant may need to disclose it in the notes to your financial statements, and lenders reading those statements will see it.
The EFS Trade Loan: what the government scheme really does
The Enterprise Financing Scheme Trade Loan (EFS-TL) is EnterpriseSG’s scheme for trade facilities. It finances trade needs including inventory and stock financing, structured pre-delivery working capital, factoring with recourse, bills of invoice and AR discounting, overseas working capital loans, and bank guarantees capped at 2 years’ tenure. It covers both domestic and overseas transactions, and the maximum repayment period is 1 year.
Read the detail: the risk share, who qualifies and how much
How the risk share works. The government shares the risk of default with the participating lender, which makes lenders more willing to lend. The standard risk share is 50 percent. Young enterprises, and enterprises operating in a challenged market, may receive 70 percent. EnterpriseSG defines a young enterprise as one formed within the past 5 years with at least 1 employee and more than 50 percent of its equity owned by individuals, and a challenged market as a country with an S&P rating of BB+ and below, including non-rated countries.
The temporary 70 percent window does not apply to the Trade Loan. From 1 September 2026 to 31 March 2027 the government has raised its standard risk share from 50 to 70 percent, but only on the EFS SME Working Capital Loan and the EFS Project Loan. The Trade Loan is not part of that enhancement. If your need is a contract you are delivering rather than goods you are trading, our project financing page explains how that window works.
Who qualifies. Your business must be registered and operating in Singapore, with at least 30 percent local equity held directly or indirectly by Singapore citizens or permanent residents, and a group annual sales turnover of no more than S$500 million. Approval is always subject to the participating lender’s own assessment.
How much. Before 1 April 2026, the EFS Trade Loan carried a separate sub-cap of S$20 million per borrower group. That sub-cap has been removed, and the overall limit of S$50 million per borrower group across all EFS facilities remains.
What the risk share does not do. It protects the bank, not you. In EnterpriseSG’s words, borrowers are responsible to repay 100 percent of the loan amount. If a loan defaults, the lender follows its normal recovery process, including realising any security, before it claims the government’s share of what remains unrecovered. EnterpriseSG does not set the interest rate either: each participating lender prices the loan on its own assessment of the risk.
You apply through one of the participating financial institutions, not through EnterpriseSG directly. That choice of bank matters, because appetite for a given industry, trade route and deal size differs from one to the next. Choosing it is a large part of what we do.
Import GST: the cash you need on the day the goods land
Import GST is collected by Singapore Customs when goods are imported, currently at 9 percent. If you are GST-registered you claim it back as input tax in your GST return, so the cash only comes back once that return is filed. Between the two, that cash is out of your business, and on a large shipment it is a meaningful sum that is easy to leave out of the plan. IRAS explains the mechanics on its page on importing goods.
There are three ways to deal with it. The first is to size your trade facility to cover the GST as well as the goods. The second, for approved GST-registered businesses, is the Import GST Deferment Scheme, under which you pay import GST when your monthly GST return is due instead of at the point of import. The third, for qualifying businesses, is the Major Exporter Scheme, under which GST on non-dutiable goods is suspended at the point of import, so the cash never leaves in the first place. Our guide to the Major Exporter Scheme sets out who qualifies and how to apply. If you qualify, this is often worth more than a fraction of a percent off a trade line.
What a bank actually assesses for a trade line
A trade line is judged on how reliably your trading cycle turns goods back into cash. Expect a lender to look at:
- Your track record: how long you have traded, with whom, and in which goods and markets.
- Your financial statements and management accounts: turnover, margins, existing borrowings, and how quickly stock and receivables convert to cash.
- The transactions themselves: purchase orders, contracts, supplier invoices and sales contracts that show where the goods come from and where they are going.
- Concentration: how dependent you are on a single supplier, buyer or country.
- Bank statements: whether the cash flows match the trade story the documents tell.
- Security and guarantees: many trade lines ask for directors’ personal guarantees, and some ask for cash margin or other collateral, particularly for guarantees.
- Compliance checks: the bank screens your counterparties and trade routes, so expect questions about who you are buying from and selling to.
The risks, stated plainly
- Trade lines are reviewed, usually yearly. The bank can reduce or withdraw a line at review, so do not build a business plan that assumes today’s limit is permanent.
- Short money for long needs fails. Rolling trust receipts to fund slow stock, equipment or losses turns a self-liquidating facility into a permanent debt the bank never agreed to.
- Currency. If you buy in US dollars and sell in Singapore dollars, a move in the exchange rate between paying for the goods and selling them comes straight out of your margin.
- Document discipline. LC discrepancies delay payment and add fees, and trust receipt terms require the sale proceeds to go towards repaying the bank. Treat both strictly.
- Guarantees can be called. A beneficiary who calls a guarantee is paid by the bank, and you then owe the bank. Read the call terms before you sign, not after.
What to prepare
- Your latest financial statements and current management accounts.
- Six to twelve months of business bank statements.
- A short description of your trade cycle: what you buy, from where, on what terms, and how long it takes to sell.
- Sample supplier invoices, purchase orders and the sales contracts or orders the goods are for.
- Details of your existing facilities with any bank, including limits and security.
- For guarantees, the tender or contract wording that sets out the guarantee required.
- Where your buyers need it, the origin documents for your goods. Singapore Customs explains when a certificate of origin is needed and when it is optional.
The question to ask before you sign
Before you choose an instrument, ask: how many days pass between paying my supplier and receiving my customer’s cash, and which part of that gap actually needs funding?
That number decides everything else. It tells you whether you need an LC at all or just a trust receipt, whether the tenor on offer fits, whether a usance LC from your supplier would do the job more cheaply than a loan, and how much of the cycle should sit on a trade line rather than a business loan or an overdraft. A bank will usually quote the product you ask for. It is not its job to tell you that the facility you asked for does not match the way your stock moves.
We broker the facility and we do the accounting, so the structure is built from your actual cycle rather than from a product sheet. If you have a shipment, a supplier’s terms or a tender in front of you, send them to us and we will tell you which instrument fits and which banks are likely to say yes. If your books cannot currently tell you your stock days, our outsourced accounting service is where to start.
For the wider view, our guides to working capital loans and invoice financing versus factoring set out how trade lines fit alongside the other short-term options.
Trade Financing: Frequently Asked Questions
Trade financing is short-term funding tied to buying, importing or holding goods, or to securing a contract. It covers letters of credit, trust receipts, bank guarantees, documentary collections and inventory financing. Most facilities fund a specific shipment or contract and repay themselves as the goods are sold. Once you have invoiced your customer, the money owed is a receivable, which is financed through factoring or invoice discounting instead.
A letter of credit is the bank's promise to pay your supplier when compliant shipping documents are presented. A trust receipt comes after that: once the bank has paid, it releases the goods to you so you can sell them, and you repay the bank from the sale proceeds by a fixed date. Many import cycles use both, one after the other.
Published Singapore bank tariffs, as at October 2026, charge import LC issuance at 1/8 percent of the LC value per month, usually with a two-month minimum and a minimum charge of about S$75 to S$100. A S$50,000 LC valid for two months or less costs about S$125 in issuance commission. Usance LCs add an acceptance commission of about 1/8 percent a month to maturity, and most other amendments are a flat S$60 to S$100, although increasing the value or extending the expiry is charged at the issuance rate. Negotiated facilities can differ.
Only in specific cases. The standard risk share on the EFS Trade Loan is 50 percent, and young enterprises or enterprises operating in a challenged market may receive 70 percent. The temporary increase from 50 to 70 percent, from 1 September 2026 to 31 March 2027, applies only to the EFS SME Working Capital Loan and the EFS Project Loan, not the Trade Loan. In every case the borrower repays 100 percent of the loan.
Under a sight letter of credit your supplier is paid as soon as it presents compliant documents. Under a usance letter of credit the bank accepts the documents and pays at the end of an agreed credit period, which gives you time to receive and sell the goods first. Usance LCs carry an extra acceptance commission for that period, typically 1/8 percent a month in published tariffs.
They do the same job. Both are a bank's undertaking to pay a named beneficiary if you do not pay or perform. Bank guarantees are common for local tenders, contracts and rental deposits, and standby letters of credit are more common in cross-border dealings. The practical questions are the same: the amount, the validity period and the terms on which the beneficiary can call it.
It can, but expect closer scrutiny. Lenders look for a trading track record, so a company with a short history is usually asked for stronger supporting documents, directors' personal guarantees or security. The EFS Trade Loan helps here: an enterprise formed within the past 5 years with at least 1 employee and more than 50 percent of its equity owned by individuals may receive a 70 percent government risk share, which makes lenders more willing to lend.
It depends on where the cash is stuck. If it is tied up before the sale, in supplier payments, imports or stock, you need trade financing. If it is tied up after the sale, in invoices your customers have not yet paid, you need factoring or invoice discounting. Many trading businesses use both, at different points in the same cycle.
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