Negociation loan means and uses.
A Negociation Loan is used exclusively in the business sector. It can come into play whenever export and import transactions are to be financed. The contracting parties thus mutually secure the payment.
Negociation Loan in the application
If you, as an entrepreneur, would like to import goods from another country, as an importer you will in many cases pay for the delivery before you actually receive it. To hedge you can now arrange a Negociation Loan with the exporter. The basis for this is a so-called change. For change, there are only slight formal requirements and they can be used freely. So you can agree that the exporter can dispose of the agreed purchase price when a certain thing has been done and the bill has been presented. The prerequisite may be, for example, the presentation of the shipping documents.
The documents for the Negociation Loan are usually valid only in combination with a suitable letter of credit. With a letter of credit, the bank of the importer undertakes to instruct the agreed purchase amount. As a rule, the bank requires the usual collateral for short-term loans. Alternatively, the importer of the goods may also impose a part of their credit line to ensure payment.
Practical significance of the Negociation Loans
Negotiation loans are normally no longer necessary within the eurozone. These short-term loans play a role, above all, in trading with Asian exporters. In theory, however, they can be used wherever the exporter and importer require additional security for the processing of payments. A similar loan is the so-called credit, which is also used to handle import and export operations. The payout of the credit but may take a little longer, because the process is a bit more complex. In the last few years, however, the two types of credit have come closer to each other through digitization and faster processes.