Financing scrap metal transactions is a bit of specialty finance which we execute through our finance partners. We can arrange finance for both experienced scrap brokers who are ready to become a principal in the transaction, for scrap yard owners who want to provide their customers the ability to pay with an LC, as well as yard owners who may be invoicing domestic customers.
Generally, scrap finance may be possible if an incoming letter of credit is confirmed by a western bank. In such cases, we can arrange to pay a scrap yard owner against documents such as a truck bill of lading, third party inspection, photos -- basically, the same sort of verifications necessary to negotiate a letter of credit. In this way, bridge financing is provided between the time scrap leaves the yard and what may be several weeks later when the documents to negotiate the letter of credit are finally available.
Scrap Metal Trades Often Have Special Requirements
The difficulty with scrap metal finance is that many of the smaller scrapyards have their own cashflow requirements, and they generally require a wire transfer when around the time the scrap is loaded. As a practical matter, it may be several weeks from the time the first truckload of scrap leaves the yard to when the shipment is completed and on its way, with ship bills of lading finally available. Financing this type of scrap deal may be possible if an incoming letter of credit is
confirmed by a western bank. In such cases, we can arrange to pay a
scrap yard owner against documents such as a truck bill of lading,
third party inspection, photos -- basically, the same sort of
verifications necessary to negotiate a letter of credit. In this way,
bridge financing is provided between the time scrap leaves the yard and
what may be several weeks later when the documents to negotiate the
letter of credit are finally available.
The required finance structure is not a true back to back letter of credit, but rather, a wire transfer backed by an incoming letter of credit. We have the capability to arrange finance with this structure, and can assist in establishing a properly secured and financed scrap deal.
We recently conducted a workshop entitled, "How to Buy Scrap with Other People's Money" at the 2010 ISRI Conference in San Diego this year. Feel free to ask for the handout from the presentation by emailing us at: doug@jigsaw-capital.com.