If you trade physical commodities, you already know the punchline: the deal looks profitable, the buyer is “solid,” the cargo is real, and yet funding is a nightmare. This shows up everywhere, from EN590 and other petroleum products to metals trading and concentrates.
It is not that lenders “hate traders.” It is that many trading companies show up with commercial terms, not a financeable structure. Credit committees fund control, documentation, and enforceability. They do not fund vibes.
Below is what actually blocks capital raises in structured commodity trade finance, including the specific pain points around back-to-back letter of credit setups, DLC at sight requests, and the growing trend of trade finance tokenization.
The core problem: commodity trading consumes cash before it produces cash
Physical trade is a cash conversion machine that runs in the wrong direction at the start:
- You pay a supplier (or issue an instrument) before you collect from the buyer
- You fund shipping, insurance, storage, inspection, and sometimes demurrage
- You carry inventory in transit for 20 to 90+ days
- If you hedge, you also post margin
Even when the gross margin is fine, liquidity can still break. One delayed discharge, one quality dispute, one customs issue, one buyer pushing payment, and your “profitable” trade turns into a working-capital crisis.
Lenders see this constantly. A trader can be right on price and still go bust on timing.
1) Lenders care more about control than commodity type
You might be moving EN590 today, then jet fuel, then diesel, then base oils. Or you might be doing metals trading: copper cathodes, aluminum, zinc, concentrates. Lenders do not care that your product is “standard.” They care whether they can control the transaction.
The lender’s real questions are boring, and that’s the point:
- Who controls the documents?
- Who controls title and release?
- Where do proceeds land?
- Can we block diversion of cash?
- If the buyer defaults, can we sell the cargo or redirect it?
If your answer is “we can handle it” instead of a documented mechanism, the deal starts losing oxygen.
2) Back-to-back letter of credit is common, but often poorly structured
A back-to-back letter of credit can be a clean way to support a trading chain: the buyer issues an LC to you, and you use it to support the issuance of a supplier LC. In theory, it reduces your cash outlay.
In practice, it often fails underwriting because of execution gaps:
- Timing mismatch between the master LC and the back-to-back issuance
- Documentary conditions that do not mirror properly
- Soft clauses or inspection language that creates refusal risk
- Transfer restrictions, assignment issues, or weak advising bank setup
- Same counterparty risk disguised as “two contracts”
Banks worry about one thing: the moment documents are presented, do they pay cleanly, or does the whole chain stall?
If your back-to-back letter of credit structure is not tight, it becomes a fragile stack where one refusal breaks the trade.
3) DLC at sight sounds “safe” but can still be unbankable
Traders love asking for a DLC at sight because it signals “we get paid immediately on presentation.” Lenders like the concept, too. The issue is not the words “at sight.” The issue is whether the presentation will actually be clean.
Common deal killers:
- Overly strict document lists that create discrepancy risk
- Vague quality terms that invite disputes
- Unrealistic presentation windows vs shipping reality
- Non-standard certificates that are hard to obtain in time
- Buyer-side banks in jurisdictions where payment behavior is inconsistent
From a funder’s perspective, an “at sight” LC that regularly presents with discrepancies is basically a delayed-payment receivable with extra steps.
4) Petroleum products add operational and compliance friction
Petroleum products like EN590 sit in a category where compliance, sanctions screening, and trade-based money laundering controls are intense. Even if you are doing legitimate flows, lenders worry about:
- Hidden beneficial owners in the chain
- Re-exports, ship-to-ship transfers, or unclear origin narratives
- Document inconsistencies across invoices, bills of lading, and certificates
- Use of intermediaries that cannot be fully diligenced
- Routing through higher-risk ports or jurisdictions
A single weak KYC file can shut a transaction down. Not because the lender thinks you are a criminal, but because the cost of being wrong is huge.
5) Metals trading is “real asset” finance, but title and collateral are often messy
Metals trading should be easier to finance, right? It is tangible, storable, and often insured. Yet many metals traders still struggle to raise capital because the collateral chain is unclear.
Examples:
- Inventory is stored, but warehouse receipts are not enforceable or not issued by a trusted operator
- Title is transferred, but not at a point that matches the financing need
- Goods are in transit, but there is no clear control over release at destination
- Collateral is pledged, but perfection and priority are unclear
- Concentrates bring additional issues around assay, payables, and settlement mechanics
Lenders prefer metals deals where collateral management, warehousing, inspection, and release controls are standardized. If your setup is “we store it with a guy we know,” you will not like the credit outcome.
6) Reporting is weak, so lenders assume the worst
Many trading companies cannot produce lender-grade reporting fast enough. That alone can kill a facility.
What lenders want is not fancy. They want clarity:
- Aged receivables by counterparty
- Inventory by location, ownership status, and valuation basis
- Open positions and hedges, including margin exposure
- Historical disputes, claims, demurrage, and loss rates
- Concentration limits and exceptions tracking
If you cannot show this cleanly, the lender prices you like a high-risk borrower or declines entirely.
7) The “we have a buyer” story is not enough without enforceable contracts
Trading often runs on relationships and speed. Funding runs on enforceability.
Lenders look for contracts that clearly define:
- Incoterms and the exact point of title transfer
- Quality and inspection rules
- Claims process and dispute resolution
- Payment terms and default remedies
- Assignment rights and step-in mechanics
- Governing law that actually works in a dispute
If your contracts are informal or inconsistent across the chain, the lender cannot model enforcement. That is where “good trades” die in committee.
8) Traders ask for the wrong product and get rejected for the wrong reasons
A lot of commodity traders ask for a generic working capital loan when they really need structured commodity trade finance. The lender then tries to underwrite it like a corporate loan and declines because it does not fit.
The better fit is usually one of these:
- Borrowing base facility against eligible receivables and inventory
- Inventory financing with controlled warehousing and release mechanics
- Pre-export finance against contracted offtake
- Receivables finance with assignment and controlled collections
- LC lines structured around documentary discipline and counterparty risk
- Structured trade finance with collateral manager, inspector, and account control
This is trade finance structuring, not “give us a line and trust us.”
9) Trade finance tokenization is not a shortcut, it still needs real structure
Trade finance tokenization is getting attention because it promises new capital sources: digital investors, stablecoin liquidity, faster settlement, fractional participation in trade receivables, and so on.
Here’s the hard truth: tokenization does not fix a weak deal.
Tokenized trade finance still needs:
- A legally enforceable underlying receivable or secured obligation
- Clear priority of claims and security interests
- Clean KYC/AML and investor eligibility rules
- A controlled cash waterfall
- Reliable servicing and reporting
- Evidence that the trade cycle produces predictable collections
If the underlying trade is not structured properly, you just wrapped a messy risk in new packaging.
Where tokenization can help is distribution: once the trade is clean, controlled, and reportable, tokenization can be a way to broaden the investor base and improve liquidity. But it starts with the boring stuff: documents, controls, and enforcement.
10) Many traders are under-capitalized relative to deal size
This is the quiet killer. Traders often try to run large tickets with thin equity.
Lenders want to see a real buffer because trade shocks happen:
- price moves
- cargo delays
- buyer disputes
- partial losses
- higher freight
- margin calls
If your equity cannot absorb normal stress, the lender is effectively your equity. They will not accept that.
What a financeable commodity trading raise looks like
When companies do raise capital for EN590, petroleum products, or metals trading, it usually comes down to a few structural upgrades:
- A defined trade flow: product, routes, counterparties, ticket sizes, seasonality
- Tight documentary discipline: document lists that match reality and reduce discrepancy risk
- Control points: inspection, title transfer, warehousing, release mechanics
- Cash control: controlled collection account, lockbox, account control agreement where appropriate
- Borrowing base logic: clear eligibility, advance rates, concentration limits
- Risk rules: hedging policy, exception approvals, stress testing, margin planning
- Reporting: weekly or even daily visibility on inventory, receivables, shipments, and exposures
That is what lenders mean by “bankable.”
Where Financely fits
Financially helps trading firms package and execute structured commodity trade finance raises, with trade finance structuring that matches what lenders actually underwrite. That includes the mechanics around LC issuance, back-to-back letter of credit setups, receivables and inventory controls, and lender-ready reporting expectations.
If you want a practical breakdown of the structures used to finance physical commodity flows, start here: https://www.financely-group.com/structuredcommodityfinance
If you want to niche down even further
If your focus is on EN590 or other petroleum products, your funding outcome will hinge on compliance readiness, documentary tightness, and control over title and proceeds.
If your focus is metals trading, your funding outcome will hinge on enforceable warehouse controls, collateral perfection, and clear settlement mechanics.
Same rule in both cases: lenders fund structures they can control and enforce. If you build that, capital shows up faster, at better pricing, with fewer surprises.