Private Credit as an Alternative to Bank Trade Loans

In today’s trading environment, relying solely on traditional bank trade loans can leave many businesses undercapitalized or stuck in lengthy approval processes. Private credit offers a flexible, faster way for exporters, importers, and SMEs to access working capital and execute deals. In this article, we’ll explore why private credit has exploded in popularity, how it differs from bank financing, and the concrete steps your company can take to tap into this alternative capital pool.

Why Banks Are Pulling Back from Trade Lending

Over the past decade, tightening regulatory requirements and rising capital costs have forced banks to reevaluate their trade finance lines. Whereas banks once competed fiercely to underwrite letters of credit and short-term trade loans, many now reserve those resources for their largest corporate customers. For smaller companies or businesses operating in emerging markets, this often means:

• Lengthy documentation checks and credit committees that take weeks or even months to approve a trade facility.
• Increased collateral demands—such as pledging receivables or additional fixed assets—just to secure a modest line of credit.
• Strict risk limits on specific industries or jurisdictions, leaving businesses in sectors like commodities or agribusiness scrambling for financing.
• Higher drawdown costs, including stand-by fees, swift confirmation fees, and hidden correspondent charges.

As a result, businesses that once counted on bank trade loans to fund shipments now face cash-flow gaps or must delay contract execution. This is where private credit steps in.

What Exactly Is Private Credit?

Private credit—often referred to as direct lending or non-bank lending—encompasses financing sourced from institutional investors, private debt funds, family offices, and specialty finance firms rather than regulated banks. These lenders deploy their own capital to underwrite loans, focusing on customizing terms to each borrower’s cash-flow needs and risk profile. Key characteristics include:

• Flexible Structures: Private lenders can craft deals that include senior, mezzanine, or unitranche tranches, often allowing for bullet repayments timed to a letter of credit’s maturity or commodity sale.
• Faster Decisions: Credit decisions are typically made by a small investment committee, enabling funding in days or weeks, not months.
• Alternative Collateral: Instead of strict asset pledges, private lenders may accept inventory under LC, insured receivables, or forward contracts as primary security.
• Customized Covenants: Covenants are negotiated to fit the business’s cash conversion cycle and seasonal needs rather than a one-size-fits-all bank template.

For businesses that face roadblocks with banks—whether because of size, sector, or geography—private credit offers a true lifeline.

Top 5 Benefits of Choosing Private Credit over Bank Trade Loans

1. Speed to Close Deals: Private lenders conduct due diligence and underwriting in parallel, which often reduces time-to-fund from 60–90 days down to 10–20 days. This means you can secure an LC or working capital facility without delaying your shipment schedule.
2. Tailored Repayment Options: Instead of weekly principal installments, private credit agreements can be structured for one bullet payment when your buyer pays the LC or when your inventory sells—aligning cash outflows with actual receipts.
3. Broader Industry Coverage: Private credit funds and specialty lenders often focus on industries that banks avoid, such as small-scale commodity traders, niche manufacturers, and companies in frontier markets.
4. Lower Collateral Hurdles: Rather than tying up a company’s core assets, private lenders may accept insured LC drafts, confirmed receivables, or third-party guarantees as security.
5. Negotiable Pricing: While interest rates can be higher than bank prime, private credit often bundles origination fees, commitment fees, and exit fees into a single all-in yield. The transparency can actually lower your overall cost once you factor in bank correspondence and documentation fees.

Which Types of Private Credit Fit Trade Needs?

Not all private credit is created equal. When your priority is funding a trade transaction—whether importing raw materials or exporting finished goods—you’ll want to consider:

• Short-Term Trade Finance Loans: Typically 90–180 days in duration, collateralized by an existing LC or insured receivables. Used by commodity traders, exporters, and distributors to pay suppliers before receiving payment from the buyer.
• Pre-Shipment Financing: Advances on purchase orders or supplier contracts. For example, a private lender might advance 80% of the PO value to a manufacturer so they can buy raw materials.
• Inventory Financing: Loans secured by physical inventory, warehouse receipts, or bonded stocks. Ideal for importers who need to buy large shipments and store them before sale.
• Structured Mezzanine Facilities: Subordinated debt that fills gaps between senior bank facilities and equity. Often used in larger transactions where banks provide partial funding, and private credit steps in for the balance.
• Revolving Trade Lines: Uncommitted facilities where private lenders fund multiple shipments on an ongoing basis, subject to a borrowing base formula tied to receivables or inventory.

How to Access Private Credit for Trade Transactions

Accessing private credit requires a slightly different approach than simply walking into a bank branch. Here’s a step-by-step guide to get you started:

1. Prepare a Clear Deal Package

Private lenders expect concise, well-documented transaction packages. Your package should include:

• Buyer/Supplier Contracts: Fully executed purchase orders, LC applications, or sales agreements showing counterparty creditworthiness.
• Detailed Financials: Recent balance sheet, cash-flow projections for the trade cycle, and an outline of existing debt obligations.
• Collateral Documentation: Evidence of insured receivables, warehouse receipts, or other pledge assets in acceptable form.
• Risk Mitigation Plan: Details on trade credit insurance, third-party guarantees, or forex hedges in place to protect lender exposure.

2. Identify the Right Lender Segments

Private credit is a broad category. To narrow your search:

• Specialty Trade Lenders: Firms that focus exclusively on short-term trade facilities and LC-backed financing.
• Commodity Finance Funds: Lenders specializing in agri-commodities, metals, or energy, often comfortable with emerging-market risks.
• Mezzanine & Direct Lending Funds: Typically step in when a bank extends a partial facility but a funding gap remains.
• Family Offices & High-Net-Worth Investors: May offer bespoke deal structures if you can demonstrate a clear exit event (e.g., LC maturity or letter of indemnity).

3. Negotiate Terms with Flexibility

Unlike banks, private lenders have more leeway to adjust terms:

• Borrowing Base: Negotiate whether the borrowing base is based on 80% of LC face value, net of fees, or 70% of insured receivables.
• Pricing Components: Expect a combination of commitment fees, flat origination fees, and an all-in interest rate. Compare full-cycle cost versus a bank’s letter-of-credit confirmation fees plus markup.
• Repayment Triggers: Align repayment with buyer payment, shipment delivery confirmation, or inventory sale—rather than fixed monthly amortization.

4. Complete Due Diligence & Documentation

Private lenders typically conduct focused, deal-specific due diligence:

• Counterparty Credit Checks: Lender will review buyer’s credit rating, bank references, and trade payment history.
• Collateral Verification: Confirm warehouse receipts, LC drafts, or insured receivables are in good standing.
• Legal Documentation: Draft and sign loan agreement, security agreement, assignment of receivables, and any intercreditor agreements if banks are involved.
• Compliance Screening: AML/KYC checks on your company, principals, and trading counterparties.

Key Considerations Before Opting for Private Credit

While private credit can be a game-changer, it’s not for every transaction. Keep these factors in mind:

• Cost versus Benefit: Private credit rates tend to be higher than bank prime, but if you value speed and flexibility, the incremental cost may justify the faster deal execution.
• Relationship Depth: Building trust with private lenders often requires transparency in your financials, cash-flow forecasts, and buyer/supplier contracts. Start the conversation early so you avoid last-minute scrambling.
• Deal Size & Ticket Minimums: Some private funds focus on multi-million-dollar transactions, while specialty trade lenders may accept smaller cases down to $250K. Match your deal scale to the lender’s appetite.
• Exit Clarity: Ensure your repayment source—be it LC payment, inventory sale, or invoice maturity—is clearly defined. Lenders need confidence in a single, tangible exit event.
• Documentation Burden: While private credit diligence is faster than banks’, the documentation can be more bespoke. Plan for legal fees and allow 7–10 days for contract negotiation.

Putting It All Together

In an era where traditional banks are tightening credit for exporters, importers, and small-to-mid-sized businesses, private credit has emerged as a powerful alternative. By offering speed, tailored structures, and broader collateral acceptance, private lenders bridge financing gaps that banks no longer fill. Whether you need a $100K working capital advance or a $10M trade facility, understanding how to package your deal, choose the right lender, and negotiate terms will be the difference between a stalled shipment and a closed transaction.

If you’re ready to explore private credit for your next trade transaction, you need a partner who knows the landscape, connects you to specialty lenders, and structures deals that align repayment with your cash-flow realities. That’s where we come in: helping businesses unlock the capital they need, exactly when they need it—without waiting on slow-moving bank approvals.

Next Steps

Ready to move forward? Start by gathering your purchase orders, LC confirmations, and financial statements. Reach out to us early so we can pre-screen potential lenders, confirm collateral eligibility, and deliver term sheets in days—not weeks. Private credit could be the difference between losing a high-value order and seizing a market opportunity. Let’s get you funded fast.