As a result of these factors, companies often discover potential opportunities but lack the resources to implement them. This is a particularly common refrain in the largest sector of the Ukrainian economy — agriculture.
This unfortunate situation has been exacerbated by the growing challenge of obtaining the necessary loans, because Ukrainian banks either have stopped lending or offer too onerous terms, while foreign entities, referring to Ukraine’s high country risk, are not rushing to provide the required funds. Domestic business has also added fuel to the fire. Suffice it to mention the scandalous bankruptcies of several large agricultural holdings, with owners disappearing and creditors cheated. This does not help Ukrainian companies when it comes to credit ratings.
However, there is still an opportunity to borrow funds, but a lot of careful homework is needed for this. Trade financing for agricultural trading operations is among the most burning issues for Ukrainian business today.
There are three types of such loans: financing for a period between lading a ship and delivery to the destination port, financing for storing at a port grain elevator for further export, and, finally, financing for collection at terminal grain elevators within Ukraine. Compared with the first two types of funding for 20–30 days, which foreign banks might considered, only a limited number of Ukrainian banks can fund the third type of operation - for up to 6 months. This being said, financing for a period between lading and delivery is the most risk-free for a foreign bank and the cheapest for the Ukrainian borrower. This is because the country risk is eliminated in this situation. With the trade finance instrument, a line of credit can be obtained for any trade operations or the funds can be raised for specific transactions.
The minimum set of conditions a company must meet to be eligible for a credit includes:
- business has been operating for at least three years as of the date the funds are received
- company has been audited
- owner equity is adequate
- organization’s business model is transparent and clear
- business has an impeccable reputation on the market
Do you meet these requirements? If so, your chances of obtaining financing go up at once. In this case, the company can obtain trade financing either in Ukraine or abroad.
As a rule, Ukrainian banks offer funding against solid security, which can be highly liquid goods or equipment, and the credit period is from 3 to 6 months. The bank’s representatives will also request an evaluation of the quality and quantity of goods supplied by third-party service providers.
One should prepare for foreign funding in advance: the authorization of all documents may take 6 to 12 months, the same as for Ukrainian banks. The financing itself is usually short-term (3 to 90 days) and is extended upon the provision of documents from third parties acknowledging that goods are available. Accumulation at a port terminal can also be financed.
Naturally, the lending institution has the last word in any transaction of this kind. The bank rigidly assesses counterparty risks and conducts detailed due diligence. However, this process should be regarded as an opportunity to identify latent risks and obtain consultations rather than as a threat. If all the procedures are successful, the company might obtain the resources for development, which are so much needed in the present context.
Raising financing is not a simple process and takes time, but it helps companies to improve their own standards of management, organization, and financial control, and to eliminate weak links.