Important Disclaimer: This article is for informational purposes. FG Capital Advisors does not originate or underwrite prepayment facilities. All financing is subject to lender approval, credit review and legal documentation.
Structured Trade Finance Prepayments: A Practical Guide and Facility Comparison
FG Capital Advisors helps commodity producers, traders and aggregators implement structured prepayment finance. From facility design to tenor selection, our expertise ensures that you tap liquidity when you need it most.
Introduction
Structured prepayment finance unlocks cash against future commodity production or offtake agreements. These facilities have grown to over $5 billion annually, offering producers and traders essential working capital without traditional debt burdens :contentReference[oaicite:1]{index=1}. In this guide, we explain the mechanics of structured prepayment facilities and compare short-term and long-term options so you can choose the best solution for your needs.
1. Mechanics of Structured Prepayment Facilities
Prepayment facilities involve four core steps:
- Origination: A producer or trader secures an offtake or purchase commitment from a buyer.
- SPV Formation: An SPV is established to isolate the prepayment transaction.
- Funding: Lenders advance funds to the SPV, which then pays the producer/trader against the offtake agreement.
- Repayment: As commodities are delivered, the SPV collects sale proceeds and repays lenders according to a waterfall.
This structure allocates risk: the SPV holds title and sales cash flows, while the producer retains operational control :contentReference[oaicite:3]{index=3}.
2. Short-Term vs. Long-Term Prepayment Facilities
Choosing between a short-term or long-term prepayment facility depends on your cash needs and production cycle:
| Feature | Short-Term Facility | Long-Term Facility |
|---|---|---|
| Tenor | 30–90 days | 12–60 months |
| Typical Use | Bridge harvest or shipment delays | Fund capex or facility expansion |
| Advance Rate | 70–85% | 50–70% |
| Pricing | SOFR + 250–400bps | SOFR + 200–350bps, plus management fee |
| Documentation | Standard SPV and offtake agreements | Enhanced covenants, DSCR tests, volume reserves |
Producers often use short-term facilities to manage seasonal production gaps, while aggregators and miners prefer long-term structures to finance expansion plans.
Conclusion
Structured prepayment finance offers flexible funding to meet both immediate working capital needs and longer-term strategic goals. Whether you require a 60-day bridge or a five-year capex facility, FG Capital Advisors can design the optimal structure, negotiate terms and manage execution. Contact us to explore a custom prepayment solution for your commodity business.
All transactions are subject to lender approval, regulatory compliance and market conditions.
