THE USE OF FINANCIAL FACILITATORS IN GROWTH AND EMERGING MARKETS

THE USE OF financial facilitators has grown in popularity in recent years, particularly in growth and emerging markets. Financial facilitators provide a range of services to help companies access financing, including letters of credit (LOCs).

LOCs are often used to finance international trade transactions. They are a type of guarantee that ensures that the buyer will receive the goods or services that they have purchased. The LOC is issued by a bank and guarantees payment to the seller if the buyer does not pay.

THERE ARE A NUMBER OF BENEFITS TO USING A LOC. FIRST, THEY CAN HELP COMPANIES SECURE FINANCING FOR THEIR INTERNATIONAL TRADE TRANSACTIONS. SECOND, THEY CAN HELP REDUCE THE RISK OF NON-PAYMENT BY THE BUYER. AND THIRD, THEY CAN HELP IMPROVE A COMPANY'S CASH FLOW BY PROVIDING FINANCING UPFRONT. However, there are also some risks associated with using a LOC. First, if the buyer does not pay, the company is still responsible for repaying the loan. Second, there is always the possibility that the bank could default on its obligations under the LOC. And third, there may be country or currency risks associated with using a LOC.

GIVEN THE BENEFITS AND RISKS ASSOCIATED WITH USING A LOC, IT IS IMPORTANT TO CAREFULLY CONSIDER WHETHER OR NOT IT IS RIGHT FOR YOUR COMPANY. IF YOU DO DECIDE TO USE A LOC, BE SURE TO WORK WITH A REPUTABLE BANK AND BROKER WHO CAN HELP YOU NAVIGATE THESE WATERS.