Trade Finance & Structured Notes for SMEs
SME Trade Finance Solutions via Structured Receivables
“The global trade finance gap has escalated to $2.5 trillion annually, disproportionately affecting SMEs. This shortfall stems from systemic issues such as stringent collateral requirements, limited access to financial services, and perceived higher risks associated with smaller enterprises. Despite these challenges, trade finance instruments historically exhibit low default rates, averaging around 0.25%, underscoring their reliability as an asset class. By structuring SME trade receivables into investment-grade securities and issuing Regulation D structured notes, we bridge this gap, directly connecting accredited investors with SMEs seeking growth capital.”
— Kenny Kayembe
Trade finance presents investors with unique characteristics:
- Low Default Rates: Average defaults hover around just 0.25%, significantly lower than typical commercial lending.
- Short-Term Liquidity: Typical maturities range from 60 to 180 days, offering investors clear exit timelines and predictable cash flows.
- Collateral-Backed Instruments: Most trade finance transactions are directly backed by tangible collateral, such as inventory or confirmed receivables, significantly mitigating investor risk.
FG Capital Advisors’ Structured Note Issuance Process
We implement a clear, institutional-grade approach to trade receivable securitization:
- Origination and Due Diligence: Rigorous assessment of SME financial health, counterparty reliability, underlying trade contracts, and collateral quality.
- SPV Setup: Establishing bankruptcy-remote Special Purpose Vehicles (SPVs) to securitize pooled SME receivables, ensuring investor protections and transparency.
- Securitization and Reg D Issuance: Trade receivables are structured into clearly defined, investable notes. Under Regulation D (Rule 506(c)), these notes are then issued to accredited investors with comprehensive disclosures.
- Return Distributions: Investors receive structured interest payments and principal repayment directly from SME receivables’ cash flows upon maturity.
| Step | Description |
|---|---|
| 1. Origination & Due Diligence | Detailed vetting of SME credit quality, contracts, and collateral. |
| 2. SPV Setup | Creation of bankruptcy-remote entities to securitize assets. |
| 3. Asset Securitization | Structuring SME receivables into transparent, investable notes. |
| 4. Reg D Structured Note Issuance | Structured notes offered exclusively to accredited investors under Regulation D, 506(c). |
| 5. Investor Returns | Regular distributions of interest and principal from underlying SME repayments. |
Advantages for SMEs and Investors Alike
Our structured finance model effectively addresses systemic issues in SME trade finance:
- Reduced Collateral Burden: SMEs access funding without traditional banking constraints, using verified trade receivables as collateral.
- Investor Confidence: Transparent investment structure, strong collateral backing, and regulated issuances ensure clear, predictable returns.
- Scalable Financing Solutions: SMEs can sustainably scale operations, enhancing their competitive positioning and global trade capacity.
Real-World Example of Impact
Recently, FG Capital Advisors structured a trade finance note backed by export receivables between African SMEs and established European buyers. Investors selectively participated on a deal-by-deal basis according to their preferred risk profile, with returns and principal promptly distributed within 180 days. To learn more about tailored SME-focused trade finance investment opportunities, please contact FG Capital Advisors directly.
