CBC Trade Finance launches
November 29, 2010
New York-based commercial finance company Capital Business Credit has launched a new division, CBC Trade Finance, to promote trade between US importers and Asian manufacturers. CEO Andrew Tananbaum explains the niche the new venture will occupy.
Our core competency is in two areas – financing importers and underwriting US customer credit risk as a factor, for our own account, without credit insurance. We realise that during the credit crisis non-bank financial institutions, such as ourselves, were not going to get much business from Asian banks as our unsecured credit risk is not investment grade. While we are a good company, we are not a bank.
My previous company, that I sold in the late 1990s to Wells Fargo, had a business that revolved around import finance and letters of credit. Since I bought CBC in 2005, letters of credit have fallen to 10% of what they were 10 years previous as the market has moved towards open account. I noticed that there was a tension growing between my clients, importers who wanted to extend their terms, and Asian suppliers who were being asked for longer post-shipment finance. We focus on the non-investment grade space of buyers and suppliers. We do not compete with banks over supply chain finance for the investment grade buyers, and I don’t think they are interested in pursuing our business. What you have to remember is that cash is king, and we are prepared to discount, or provide early payment, to suppliers in cash.
From a historical point, in the old days factors used to finance the suppliers of raw material components to the manufacturing companies that would produce the final product. What has changed is that that used to happen from 7th Avenue over to Broadway in New York City– now this occurs Trans-Pacific.
We decided that the best way to serve both the importers and exporters was to have one foot in each market. We could then work both directly with suppliers and directly with buyers. It was with this in mind that CBC launched CBC Trade Finance, headquartered in New York with offices in Hong Kong and Shanghai. US Trade Representative figures back up this decision, as the US imported nearly $300 billion worth of goods from China in 2009 alone.
Through CBC Trade Finance’s Supplier Early Payment (SEP) Programme, we will provide up to 120 days of open account terms to US-based importers, while paying Asia-based manufacturers 100% of their receivables, without recourse, upon shipment of goods. The programme is up and running and has attracted a new breed of clients for CBC away from its traditional market that requires asset-based factoring solutions.
While the initial focus is China, we are in discussions with both suppliers from, and importers of goods from, other Asian and South East Asian nations. Beyond the expansion into other markets, we hope to see some cross-sell with its more traditional factoring and asset-based lending products. Currently, target industries for the SEP programme are the garment and furniture industries, electronics, and any other supplier to creditworthy retail buyers in the United States.
This programme allows for a more efficient and profitable exchange of goods and enables manufacturers in Asia to mitigate risk by receiving payment on shipment. In short, suppliers get paid faster and importers can pay for their goods later in the process through our provision of unsecured open account terms of up to 120 days.
In the US, CBC CEO Andrew Tananbaum will lead the new division, and Patrick Ho, CBC’s executive vice president and regional manager, Asia, will oversee CBC Trade Finance in Asia. All CBC offices will offer the SEP Programme.