Notice. FG Capital Advisors focuses on commodities, structured trade finance, private credit, and related capital solutions. The firm provides financial modelling, analytical support, sponsor side structuring, and arranging services for secured trade finance facilities. FG Capital Advisors is not a bank, lender, credit insurer, or broker dealer and does not issue loans, guarantees, or insurance products. Any facility, LC, guarantee, derivative, or investment product referred to on this page is provided by regulated entities under their own licences, terms, and documentation. This guide is general commentary and does not replace transaction specific legal, tax, or credit advice.
Security Agreements In Trade Finance: Charges, Pledges, And Bailee Arrangements
In real trade finance, lenders rarely fund on name alone. They fund against collateral they can control and enforce. Security agreements, charges, and bailee structures are how that control is documented. If these pieces are weak, pricing increases, availability drops, or the deal does not clear a credit committee.
This guide explains how security agreements work in trade finance, how charges and bailee arrangements are used to control stock and receivables, and what sponsors need in place before approaching banks or private credit funds. If you require a secured borrowing base, pre export, or receivables facility, FG Capital Advisors can act as your trade finance arranger.
Request Secured Trade Finance SupportWhy Security Agreements Matter In Trade Finance
Security agreements give lenders a legal interest in the assets that back a trade finance facility. They translate collateral discussions into enforceable rights. Without clear security, lenders are effectively making unsecured working capital loans, and will price or size the facility accordingly.
In trade finance, security usually targets:
- Inventories in storage, transit, or production.
- Receivables from approved buyers.
- Assigned contracts and export proceeds.
- Shares in key trading subsidiaries.
- Cash in controlled accounts.
The security agreement sets out what is charged or pledged, how perfection and registration work, and how proceeds are applied on enforcement.
Types Of Security: Fixed Charges, Floating Charges, And Pledges
The exact terminology varies by jurisdiction, but most secured trade finance structures rely on a mix of fixed charges, floating charges, and pledges or assignments.
- Fixed charge. A security interest over specific assets that the borrower cannot dispose of without lender consent, for example a charge over a pledged bank account or a storage tank.
- Floating charge. A security interest over a changing pool of assets, such as inventories or receivables in the ordinary course of trade. The borrower can buy and sell in line with business activity until crystallisation on default or agreed triggers.
- Pledge of receivables. Security over specific receivables, often combined with a legal assignment and notice to the buyer, so that payments flow to a controlled account.
- Assignment of contracts. Security over offtake agreements, export contracts, or insurance policies, so that lenders can step in and collect proceeds if the borrower fails.
- Share pledges. Security over shares in key operating subsidiaries, used to give lenders an enforcement route at holding company level.
The security agreement or suite of agreements will specify which combination applies, how each charge is created, and how it interacts with local law.
Perfection, Priority, And Registrations
Taking security is not enough. It has to be perfected and registered in the right way for lenders to have priority over other creditors. This is where trade finance transactions can become complex, especially for multi-jurisdictional commodity flows.
- Perfection steps. Depending on the jurisdiction and asset type, perfection may require registration with a collateral registry, notice to counterparties, possession of documents of title, or control of bank accounts.
- Priority. Security rankings determine who gets paid first on enforcement. Existing lenders, tax authorities, and suppliers may have prior claims. Intercreditor agreements are often needed to manage these layers.
- Corporate approvals. Board resolutions, shareholder approvals, and financial assistance rules can affect the validity of security grants.
- Security in multiple jurisdictions. Stock in one country, receivables in another, and borrowing entities in a third require local law security opinions and coordinated filings.
As arranger, FG Capital Advisors helps sponsors map where assets sit, who already has claims over them, and what level of security package is realistic before legal counsel structures detailed documentation.
Bailee And Bailor Arrangements In Trade Finance
Many trade finance facilities rely on goods stored in third party warehouses or processing facilities. Lenders need comfort that those goods can be identified, controlled, and delivered to them or to buyers if the borrower defaults. This is where bailee and bailor arrangements are used.
In legal terms:
- Bailor. The owner of the goods who hands them over to someone else for safekeeping or handling.
- Bailee. The warehouse operator or third party who takes possession of goods while ownership remains with the bailor.
In a trade finance context, the borrower or sometimes the lender is treated as bailor. The warehouse operator or collateral manager acts as bailee under a documented agreement. That bailee agreement often:
- Confirms that goods are held for the benefit of the lender or security agent once charged or pledged.
- Requires segregation, tagging, or clear identification of financed stock.
- Restricts release of stock except on instructions from the borrower and/or lender.
- Sets out reporting duties on stock movements, shrinkage, and losses.
- Allocates liability for damage, theft, or misdelivery.
In some structures the bailee is also a professional collateral manager under a collateral management agreement, with the bailee role forming part of that set of documents.
Warehouse Receipts, Collateral Managers, And Control Of Stock
Lenders want more than theoretical rights over goods. They want practical control. Warehouse receipts and collateral management agreements are tools used to bridge that gap.
- Warehouse receipts. Documents issued by warehouses that acknowledge receipt of specific goods and confirm that they hold them on agreed terms. In some jurisdictions these receipts are negotiable and can be endorsed to transfer rights over the goods.
- Collateral management agreements (CMAs). Contracts under which a collateral manager controls access to financed stock, monitors quantities and quality, and reports regularly to lenders and the borrower.
- Tri-partite arrangements. Many CMAs are structured between the borrower, the collateral manager, and the security agent or lender, so responsibilities are clear.
- Release procedures. Rules on when stock can be released to buyers, and how that ties into repayment of the facility or reduction of the borrowing base.
Where possible, lenders combine legal security (charges or pledges) with operational control through bailee or CMA structures. The facility agreement refers to these documents and can treat any termination or breach of them as a potential default.
Security Over Receivables, Accounts, And Proceeds
Receivables and cash are as important as stock. Security agreements in trade finance address how lenders gain control over these flows as part of the collateral package.
- Receivables assignments. Legal or equitable assignments of receivables from specified buyers, sometimes with notice to those buyers and redirection of payments to a controlled account.
- Account charges. Fixed charges over collection or escrow accounts, often combined with account control agreements with the bank that holds the account.
- Proceeds application. Waterfalls that specify how incoming cash is applied to fees, interest, principal, and other obligations under the facility.
- Trust or agency language. In some structures, the borrower acknowledges that it holds certain proceeds on trust for lenders once received, strengthening the lender’s claim against competing creditors.
For sponsors, the practical issue is whether their systems and customer relationships can handle these controls without disrupting business. That needs to be tested early in any arranging process.
Enforcement Pathways: What Security Agreements Allow Lenders To Do
When a default occurs and is not cured, security agreements give lenders actual tools rather than just contractual complaints. The facility and security documents typically allow lenders to:
- Block further drawings and lock collection accounts.
- Take control of cash balances and apply them under the facility waterfall.
- Instruct warehouses or bailees to release or transfer goods under their control.
- Collect receivables directly from buyers under assigned contracts.
- Enforce share pledges and step into ownership of key operating entities.
Intercreditor agreements and local insolvency rules affect how cleanly these rights can be exercised. Lenders will price deals and set limits with these enforcement realities in mind.
What Sponsors Should Prepare Before Offering Security
Offering security in principle is not enough to secure a competitive trade finance facility. Sponsors need to show that security can be implemented and monitored in practice.
- Asset map. Clear view of where inventories, receivables, and key contracts sit, by legal entity and jurisdiction.
- Existing liens. List of all current security interests, bank charges, and supplier retention of title claims that might affect priority.
- Warehouse and logistics setup. Names and locations of warehouses, storage operators, and logistics providers, including any existing bailee or CMA style arrangements.
- Systems and reporting. Ability to produce stock lists, ageing reports, and movement reports that match what a borrowing base or CMA will require.
- Legal and tax views. Initial guidance from counsel on what security structures local law will support, and where group restructuring may be needed.
FG Capital Advisors spends a significant part of any arranging mandate aligning this reality with what banks and funds will accept as a viable security and control package.
How FG Capital Advisors Uses Security Structures In Trade Finance Mandates
FG Capital Advisors acts as sponsor side arranger for secured trade finance facilities. Security agreements, charges, and bailee structures are central to that work because they determine both bankability and price.
Our role typically includes:
- Designing a collateral and security concept that fits the sponsor’s trade flows and group structure.
- Working with management to define which stock, receivables, and contracts can realistically be charged or assigned.
- Shaping the commercial terms around borrowing base, security, and control before facility documents are drafted.
- Preparing lender materials that explain the security package, collateral managers, and bailee arrangements in detail.
- Engaging with banks and private credit funds that have appetite for structured, secured trade finance and understand warehouse and bailee structures.
Legal documentation and local law structuring remain with external counsel. FG Capital Advisors focuses on aligning the commercial security story with what trade and credit committees expect to see.
If you require a secured trade finance facility that relies on stock, receivables, and warehouse control, the security structure is not something to leave to the last round of legal comments. It is one of the first items serious lenders will test.
Share a concise outline of your business, asset base, and funding requirement through the FG Capital Advisors client intake form. The team will review whether a secured borrowing base, pre export, or receivables facility arranged with suitable lenders is realistic for your situation.
Request Secured Trade Finance SupportDisclosure. FG Capital Advisors provides financial modelling, structuring input, sponsor side advisory, and arranging services. The firm does not originate, offer, or sell securities, loans, deposits, guarantees, or insurance products and does not accept client money. Any trade finance facility, LC, guarantee, derivative, or investment product referenced on this page is carried out by regulated entities under their own licences, terms, and documentation. This guide is not legal, tax, accounting, or investment advice. Any engagement is subject to internal approval, conflict checks, KYC and AML checks where required, and a formal engagement letter.
