A trade finance loan is a short-term loan from a bank that funds a specific purchase or sale of goods and is repaid from the proceeds of that transaction. Unlike an overdraft or general working capital facility, each drawing is tied to an identified shipment and has a term matched to the trade cycle, typically between 30 and 180 days.
An importer uses a loan of this kind to pay its supplier on time and repays once the goods have been sold, a form of import finance. An exporter may borrow before shipment to buy materials and produce the goods, or after shipment to bridge the wait for payment from the buyer; see export credit. Being self-liquidating, it is seen as lower risk than unsecured lending. Trade loans are a core product of trade finance, often drawn under a letter of credit or collection.