Small Trade Finance Firms Gain
Are there any hot niches left in finance? Lending for international trade shipments.
Financial professionals skilled in evaluating credit risk or reviewing import-export transactions should sit up and take note.
Not that trade itself is booming. Quite the contrary: shipping volume is taking it on the chin as the world plunges into recession. But big global banks' flight from all types of lending is forcing importers and exporters to seek financing elsewhere, says a recent Wall Street Journal story. That's creating a flood of business for various niche trade-finance providers that include small hedge funds and boutique investment firms.
Global trade is a $14 trillion annual business, and 90 percent of it is shipped on credit. The most common mechanisms are letters of credit, factoring of receivables, and loans secured by the goods being shipped. Now that default is on everyone's mind, interest rates and other charges for these loans have climbed sharply, but so have lenders' risks. Says the Journal: "Demand for export and trade finance is so high that the operations of these small firms are being tested to the limit. They have to be careful about who they lend to, even though they are being offered what can seem like extraordinary incentives to make a loan."