Important Disclosure. For professional counterparties only. Informational content. Not a public offer. Any mandate is subject to underwriting, KYC/AML, sanctions screening, conflicts checks, and definitive documentation.
Core Trade Finance Structures Explained
In physical commodities, lenders rarely finance a company. They finance a controlled transaction or a controlled pool of assets. That is the difference between generic lending and trade finance.
The four structures below show up repeatedly because they map cleanly to how commodities move: purchase, storage, production, export, and collection. The structures are not interchangeable. Each one has a different collateral base, a different control stack, and a different failure mode.
Covered In This Guide
- Borrowing Base Facilities
- Inventory Financing
- Pre-Export Finance
- Offtake Prepayment Financing
Why This Matters
- These structures drive advance rates and pricing
- They determine which lenders can participate
- They define reporting and monitoring burden
- They decide whether funding is repeatable or one-off
The Control Stack That Makes Trade Finance Work
Trade finance is mostly controls. Collateral is necessary but not sufficient. Lenders want legal rights plus operational control points that prevent cash leakage.
Common Controls
- Title control and pledge mechanics
- Independent inspections and quantity/quality verification
- Controlled accounts and assignment of proceeds
- Release mechanisms linked to repayment conditions
- Insurance, loss payee clauses, and sanctioned counterparties screening
The CMA Is Often The Backbone
A collateral manager and a Collateral Management Agreement are frequently used to make inventory and borrowing base facilities financeable. If you want the detailed mechanics, see our guide on Collateral Management Agreements in Trade Finance.
1) Borrowing Base Facilities
A borrowing base facility is a revolving credit line where availability is formula-driven. The lender does not lend against your “plan”. The lender lends against eligible collateral pools at defined advance rates, less reserves.
| Component | What It Means | Why Lenders Care |
|---|---|---|
| Eligible Inventory | Goods that meet eligibility rules (location, title, quality, insured, verified) | Inventory is financeable only when it is controllable |
| Eligible Receivables | Invoices owed by approved buyers within defined tenor limits | Collection predictability drives pricing and leverage |
| Advance Rates | Percentages applied to eligible collateral to determine availability | Advance rates reflect volatility, liquidity, and control quality |
| Reserves | Deductions for concentration, disputes, slow pay, seasonality, or jurisdiction risk | Reserves protect the lender from data errors and stress cases |
| Borrowing Base Certificate | Recurring report showing calculations and collateral schedule | It is the trigger for draws, holds, and margin calls |
What Usually Breaks Borrowing Base Facilities
- Weak title chain or unclear ownership in transit
- No independent verification of stock and movements
- Buyer concentrations that blow through eligibility caps
- Poor reporting cadence or inconsistent data tapes
- Commodities stored in facilities the lender cannot control
Borrowing base design is technical. Eligibility rules, reserves, triggers, and monitoring should be written like a control manual, not like marketing copy. Our structuring approach is outlined on Trade Finance Structuring and Borrowing Base Design.
2) Inventory Financing
Inventory financing is asset-backed funding secured specifically by physical goods. This is the structure that funds stock on the ground, in tanks, or in bonded storage.
Collateral Package
- Pledge over inventory and proceeds
- Warehouse receipts or tank receipts
- Insurance assignment and loss payee endorsements
- Inspection regimes and release protocols
- Collateral manager oversight in many cases
Lender Comfort Comes From Control
Inventory is not “safe” because it exists. It is financeable when the lender can enforce title, verify quantity and quality, and block release unless repayment conditions are satisfied.
Inventory Financing vs Borrowing Base
Inventory financing is often transactional and tightly linked to a defined stock parcel. Borrowing base facilities are programmatic, revolving, and cover larger pools across time. In practice, inventory financing frequently sits inside a broader borrowing base structure.
Common Failure Modes
- Storage sites that do not allow enforceable access or control
- Commingled goods without segregation and clear identification
- Inadequate insurance or exclusions that matter in real claims
- Operational leakage: releases not aligned to controlled accounts
3) Pre-Export Finance
Pre-export finance funds production ahead of export and sale. It is common in mining, agriculture, energy, and industrial supply chains where the producer has predictable output and credible buyers.
Typical Repayment Logic
- Facility funds working capital or production costs
- Production is sold under export/offtake contracts
- Export proceeds are assigned to controlled accounts
- Debt amortizes from each shipment on a predefined schedule
What Lenders Actually Underwrite
- Production capacity and ramp profile
- Cost curve and margin under downside pricing
- Operational risk and track record
- Buyer enforceability and payment certainty
- Jurisdiction and export logistics reliability
What Usually Breaks Pre-Export Finance
- Overstated production assumptions and weak contingency planning
- Contracts that look strong but do not bind cash flows
- Export bottlenecks and logistics gaps that delay shipments
- Proceeds not fully captured due to account control failures
If you want a broader view of how trade finance documentation is structured and why it matters, see Guide to Trade Finance Facility Agreements.
4) Offtake Prepayment Financing
Offtake prepayment financing is when a buyer prepays for future deliveries. In many cases the buyer is the conduit and a bank or private credit lender funds the prepayment behind the scenes because the buyer’s credit is stronger than the producer’s.
Why Offtake Prepayment Is Powerful
- It ties funding to a contracted sales channel
- Amortization can be matched to deliveries
- Buyer involvement reduces some performance risk
- It can fund capex or working capital depending on terms
What Lenders Still Require
- Delivery controls and performance remedies
- Pricing mechanics that survive volatility
- Clear events of default and step-in rights
- Account control and proceeds capture
- Sanctions, compliance, and counterparty diligence
Common Failure Modes
- Prepayment used for unrelated purposes without monitoring
- Contracts lacking enforceable delivery and repayment mechanisms
- Insufficient security package when performance deteriorates
How These Four Structures Combine Into Senior, Mezzanine, and Junior Tranches
Many commodity financings are layered. Senior lenders fund the most controlled, most liquid part of the collateral base. Mezzanine and junior tranches bridge gaps created by volatility, concentration limits, or weaker counterparties.
Senior Tranche
Typically supported by controlled inventory, eligible receivables, tight covenants, and strong account control. Lowest pricing. Highest control burden.
Mezzanine and Junior Tranches
Used to increase leverage, fund timing gaps, or support growth. Pricing rises as control weakens or volatility increases.
The practical point: the better your collateral and controls, the more of your capital stack can sit in the senior tranche. That is where cost of capital improves.
Where FG Capital Advisors Fits
We structure and place trade finance facilities built around real cargo, storage, and receivable flows. We focus on controls, lender-grade packaging, and disciplined lender decisioning.
If you want a technical overview of how distribution works, see Trade Finance Distribution: A Technical Guide.
If you are seeking arrangement support, you can start with Structured Trade Finance Mandates and submit details through Client Intake.
Disclaimer. Best-efforts execution. No guarantees of funding, pricing, or closing. Outcomes depend on counterparties, documentation quality, collateral controls, and third-party approvals.
