Moving towards private credit

While most are consumed with the consumer impact and geopolitical implications of the latest US tariff hikes, Dominic Capolongo at LiquidX asks, could this cause a shift in trade finance dynamics that will accelerate the move towards private credit?

 

This month, we’ve seen US tariffs very much back in the headlines, as new hikes on a wide range of imports - including clothing, coffee, toys, and cars - have pushed the average effective rate to its highest point since the Great Depression.

 

As expected, the resulting disruption to global trade and cost planning has been felt deeply across exporters, importers, and the worldwide network of manufacturers and retailers that rely on stable cross-border flows.

 

There’s also been a lot of talk about how it will affect consumers, with major retailers not just warning, but now actively raising prices to help offset estimated tariff hits. The price of Nike’s shoes is going up, Walmart’s started marking up baby gear, kitchenware and toys, and P&G has said prices will start going up by about 2.5% this month.

 

 

How will trade finance be impacted?

But, beyond the many headlines focused on household budgets and geopolitical tensions lies an under-explored question: could the latest tariff news cause a shift in trade finance dynamics, especially for companies engaged in cross-border trade? And will the shift accelerate a move towards private credit?

 

For me, the answer is most certainly yes. Right now, tariffs are creating greater cost uncertainty and squeezing margins. This has caused two chain reactions.

 

One, banks are becoming more cautious in underwriting cross-border transactions, particularly for SMEs or sectors heavily exposed to tariff volatility. In general, we’ve seen longer approval timelines and tighter credit appetite.

 

And two, companies themselves are seeking faster and more flexible financing to manage working capital gaps. Many are reevaluating their supply chains and need capital solutions that can adjust quickly to changing trade routes and pricing dynamics.

 

The result has seen private credit funds and direct lenders fill this gap. Far better positioned to step in during times like this, they are not constrained by the same regulatory burdens or rigid product structures as banks, allowing them to move faster and tailor terms to each borrower’s needs. Their agility and risk appetite also make them well-suited to navigate complex and fast-changing trade environments.

 

Increasingly, that agility is also being amplified with the help of technology, allowing both sides to transact with better speed and confidence. Digital infrastructure and real-time data, for example, are allowing private lenders to assess risk, monitor collateral, and automate settlement. All of these are critical in trade finance, enabling faster onboarding, greater transparency, and the ability to scale solutions.

 

One of the most practical ways this plays out is through working capital programs. Supply chain finance (payables), for example, lets buyers extend payment terms while suppliers receive early payments, enhancing working capital for both parties. Receivables programs are also key, enabling businesses to convert their receivables into immediate cash, offering more financial flexibility to navigate volatile times.

 

With traditional lending becoming more restrictive by the day, both of these types of programs offer attractive alternatives, allowing businesses to strengthen:

• Financial stability, which allows businesses to continue operations even during times of crisis.
• Supplier relationships, particularly beneficial during challenging times when there’s a lot of fear swirling.
• Liquidity, enabling companies to not only ensure business continuity but also fund innovations and explore new market opportunities.

 

Implications for finance and liquidity

Exact figures are hard to pin down, but within the broader speciality finance sector, which includes areas like trade finance and equipment leasing, private credit is estimated to hold less than a 5% share of this $5.5 trillion market. While a small slice in the grand scheme of things, there’s lots of room for growth thanks largely to the agility private credit offers; something many senior figures in the investment and credit ratings world have attributed to recently.

 

With this in mind, as well as a combination of rising geopolitical risk, tighter bank lending, and growing digital infrastructure, the likelihood of a lasting structural shift towards private capital in trade finance is high.

 

Over time, it could reshape global liquidity flows, with alternative lenders playing a far more prominent role in supporting cross-border commerce, especially with the help of technology powering the shift.

 

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Dominic Capolongo is CRO at LiquidX

 

Main image courtesy of iStockPhoto.com and KanawatTH