Making Working Capital Loans Work for Your Business

The current moment is one of shifting paradigms in trade. Globalisation is teetering back towards deglobalisation, while onshoring is now seeing more interest than offshoring – all amidst an economic backdrop that is as vibrant as it is uncertain. Businesses in Asia have much to navigate in both pursuing opportunities and mitigating risks. Healthy levels of working capital are indispensable regardless, but not every business leans on their banking partner for support in the way that they should.

In this article we’re going to delve into why working capital loans are a tried and true option for companies looking to grow and make the most of out of today’s and tomorrow’s opportunities.

A brief look at Asia’s trade landscape

Trade in Asia has undergone significant transformations, particularly when it comes to intraregional trade and evolving supply chains in the region. Looking at the numbers, intraregional trade accounts for approximately 57% of Asia's total trade, a notable increase from 54% in 2000, positioning Asia as the world's second-most integrated trade region after the European Union (EU).¹ This shift has been driven largely by manufacturing supply chains that span multiple countries within the region, with about two-thirds of intra-Asian trade consisting of intermediate goods used in production processes.

In addition, China has retained its position as the top trading partner to many Asian nations, accounting for 20% of ASEAN's total trade in 2023, up from 12% in 2010.²³ This connectivity is complemented by the increasing importance of domestic demand within these economies, which has expanded at an average annual rate of 6.4% over the past decade.⁴ Given this, China has now surpassed the U.S. and EU as the largest source of final demand for many Asian countries.

Additionally, multilateral agreements such as the Regional Comprehensive Economic Partnership (RCEP) are expected to further facilitate trade integration by reducing barriers and promoting cooperation among member states.

There are also additional signals that come together to reflect the trade situation facing the region:

Increased connectivity: The growth of intraregional trade reflects a growing economic interdependence, particularly between major players such as China and ASEAN, which are increasingly relying on each other for imports and exports.

Geopolitical influences: As global trade patterns shift, many economies in Asia are gravitating towards geopolitically closer trading partners. This trend is evident in the rising trade volumes between ASEAN nations and both China and the United States, as countries seek to mitigate risks associated with geopolitical tensions.

Emerging trade connectors: Countries such as Vietnam and many members of ASEAN are playing the role of connectors between major economies. For instance, Vietnam has significantly increased its imports from China while boosting exports to the United States, highlighting its strategic role in global supply chains.

Technological advancements: The rise of emerging technologies and digital-led solutions, particularly in the area of fintech, are ushering in a new era of client servicing and the dynamics of collaboration between financial institutions and the business community.

Where working capital loans fit in

In an uncertain trade environment, the market can move fast and shifts can arise unexpectedly. Have the right support in place can help mitigate the downside risks of these developments.

Working capital loans are designed to help companies cover temporary or day-to-day expenses all while staying primed for growth. They can take various forms, including:

Trade Loans: Short-term financing options specifically designed to support importers and exporters in managing cash flow during the trading cycle, allowing businesses to pay suppliers while awaiting payment from buyers.

Buyer Loans: Financial products that provide funding to importers, enabling them to purchase goods by covering the costs until they can sell the products and receive payment from their customers.

Seller Loans: Financing for exporters, allowing them to produce and ship goods by providing the necessary capital until they receive payment from the importing buyer.

Business overdraft facilities: Allow companies to withdraw more money than is available in their accounts, providing immediate access to funds for short-term operational needs while incurring interest only on the overdrawn amount.

Business credit cards: Provide a revolving line of credit for companies, enabling them to make purchases and manage expenses while offering rewards and benefits for business-related spending.

Revolving loan facilities: Allow businesses to borrow up to a certain limit, repay the borrowed amount, and then borrow again as needed, providing flexibility in managing cash flow and operational expenses.

Using working capital loans strategically

Working capital loans can significantly enhance a business's financial stability and operational efficiency, making it easier to manage day-to-day expenses. Unlike general working capital, which encompasses all assets and liabilities, trade working capital focuses specifically on the funds tied to daily operations.

For example, one of the primary benefits is the minimisation of unplanned overdrafts, which can be costly and disruptive to operations. By having access to a working capital loan, companies can better manage their cash flow, ensuring they have the necessary funds to cover expenses even during periods of fluctuating income or unexpected costs.

Another significant advantage of working capital loans is the ability for businesses to access funds when they are most needed. This ensures smoother financial operations, as companies can quickly respond to opportunities in the market without being constrained by cash shortages. The flexibility of these loans allows businesses to maintain their momentum which might be difficult otherwise due to lack of immediate funds.

On top of this, working capital loans provide businesses with the ability to cover short-term or daily expenses through a flexible draw, repay, and redraw system within a given facility’s limits. This revolving nature of the loan allows companies to manage their cash flow more efficiently, using funds as needed and repaying when cash is available – all of which critical for optimising financial resources.

As businesses assess their working capital needs, they should think about how best to put these loans to work.

Assessing financial needs: Businesses should take into account factors such as cash flow cycles and seasonal variations in the business. This assessment helps in determining the appropriate loan amount and type, ensuring that the financing aligns with the company's requirements at a given time.

Choosing the right loan: Companies should carefully consider their needs and select a loan product that offers the most suitable terms and flexibility.

Using funds strategically: Businesses may prioritise expenses that will have the most significant impact on operational efficiency and growth potential. This might include investing in inventory, upgrading equipment, or expanding into new markets, depending on the priorities of the moment.

The indispensable role of innovation

The need for speed in trade has given rise to important innovations in working capital financing. For our part, HSBC offers a variety of working capital loan solutions to help companies operate smoothly and plan their next steps. These loans provide quick access to funds, tailored financing options, and expert support.

One the first and most important steps for businesses is how they apply for loans. The key is speed and flexibility, and that is exactly what HSBCnet offers through its digital tools. Those tools significantly reduce the paperwork involved in securing financing. A digital-led approach also simplifies the application process while at the same time giving customers total visibility of their finances anytime, anywhere.

Businesses can also use digital tools such as loan calculators to estimate their borrowing capacity and repayment plans. This can be a helpful aid in staying on top of financing needs and what sort of loan will work best given the situation.

Taking this a step further, HSBC TradePay is a digital trade finance solution that enables businesses to unlock working capital instantly. It is fully integrated within HSBCnet, empowering companies to make just-in-time payments to suppliers as well as draw down loans in under a minute – facilitating the alignment of cash outflows with production schedules and meet the demands of new orders without delay.

Through HSBC TradePay, businesses can solidify their relationships with suppliers, keep their borrowing costs under control and do business with confidence.

We take pride in providing fast approvals for working capital loans. Businesses don’t have the luxury of waiting for liquidity to pursue new opportunities or respond to issues that arise, and so we have innovated to ensure there is no lag in responsiveness.

It’s all about the right banking partner

Success in today’s trade landscape requires a reliable banking partner who not only provides needed financial support, but also delivers local market expertise and advice for navigating shifting regulatory environments.

Local expertise: A banking partner with a strong local presence across markets can provide needed insights into local markets, cultures, and consumer behaviours. This local knowledge is essential for businesses looking to expand or operate in Asia’s diversity of markets, which can vary significantly. On top of this, having a extensive global network can help businesses meet their cross-border and even cross-regional needs.

Regulatory guidance: The regulatory landscape in Asia is nuanced, with each country having its own set of rules and compliance requirements. A banking partner who can assist businesses in understanding and adhering to these regulations will minimise the risks associated with non-compliance. This is particularly important as trade finance often involves navigating different currency regimes and licensing requirements across jurisdictions.

Financial support: Access to trade finance solutions at the cutting edge of innovation is and will continue to be a vital element businesses engaged in cross-border trade. A banking partner such as HSBC can offer all the required trade solutions to ensure businesses have the working capital they need when they need it.

Financing the future of trade

Business today happens at pace. Keeping a company’s day-to-day operations running smoothly requires sufficient funds. From expanding a business to investing in new capabilities, there are many reasons why access to working capital is a business necessity.

This is because strains can come from a variety of sources, both internal and external – everything from rapid growth putting pressure on resources to working capital being tied up in receivables to fluctuating economic conditions such as inflation and interest rates.

As we’ve discussed, working capital loans are a ready solution to meeting ongoing funding requirements in a changing business environment. But they are also more than that. Companies today need financial partners who will collaborate with rather than merely service them.

In a market that moves as fast today’s, such collaboration is nothing short of a competitive advantage – because success almost always goes to those who are the most prepared.