Friday’s Insider: Navigating the challenges of starting a trading house

A friend of a friend called me yesterday for a little chat. The guy is trying to start his own business in export-import operations and asked several questions related to a common business scope of work.

So, it made me think—how hard or, perhaps, easy is it to start your own trading house these days if you have been in this business for a while, have your own clients, and understand your markets well?

Well, let’s presume that you hold citizenship, which makes it no problem for you to open up a company in any jurisdiction. Meanwhile, it’s a sensitive topic today.

The first serious problem you are facing is communicating with the bank. In my ideal world, commercial banks are made to welcome new businesses, open accounts, and stimulate them to do business. But my ideal world is too far away from the modern reality. In 2017, when I set up my Swiss company and had an intention to stay in Switzerland and keep on doing business, five banks consecutively refused me to open an account, forcing me to close the company down and move to the UK. To tell the truth — I have no regrets.

Let’s say you have been successful in answering a million and one questions about the nature of the business, presenting your business plan, disclosing all your potential business partners and their relatives, naming HS codes of your products, and sending expected cash flows. You have an account opened!

“Where’s the Money, Lebowski?”. Or, where do you get your financing from? Again, if you have a confirmed Letter of Credit in hand and a reliable supplier who may ask for a partial prepayment, what are your chances of having trading finance from a commercial bank, using an L/C, opened for your trading company? My practice says that for a newcomer, these chances approach zero. Banks avoid risks these days. They are not hungry for new business anymore. They are afraid of any questions that may arise several years after the deal.

There are always some funds that may be considered for giving you a loan. But, apart from the abnormal rates they charge, they ideally want to see your past performance (guys, we have only started!) and may ask for some, and rather big, company equity.

It’s a vicious circle: We can’t borrow money because we haven’t completed enough deals, and we can’t make new deals because we don’t have money.

In fertilizers, we can count top firm by the fingers of one, ok, two hands. But these tycoons had existed even before I started in 1994. Examples of those who started and survived also exist. Yes, this tunnel has some light at the end of it. Fertilizer trading has a lot of niches, which allow it to make a decent margin and invite third-party financing even for small, just-started enterprises. I keep on saying that knowledge of the market and a personal approach to your customers is the key. Seek, and you shall find.

————

About the Author of “Friday’s Insider”: Ilya Motorygin is the co-founder of GG-Trading and brings 30 years of experience to the fertilizer industry. Renowned for his comprehensive problem-solving skills, Ilya expertly manages deals from inception to completion, overseeing aspects such as financing, supply chains, and logistics.