Trade Finance: Fixed Income Alternative

Uncorrelated Returns · Income Generating · Asset-Backed · Short Duration

WHAT IS TRADE FINANCE? EFFECTIVE WORKING CAPITAL FINANCING SOLUTIONS

Trade finance is financing for manufacturing, processing, distribution, or other commerce related activities on a domestic and international basis. Trade finance is an important external source of working capital financing that can significantly help fast-growing and cash-constrained businesses.

The scope of trade finance includes factoring (advancing money on invoices), reverse factoring, payables financing, purchase order finance, and asset/receivable based lending (making loans collateralized by assets/receivables).

The most significant difference between these forms of financing versus general small business lending is that they have short tenors – typically between 30 and 120 days. As a result of the short tenor, default rates are historically low.

WHY THE OPPORTUNITY EXISTS

Companies may be motivated to seek trade finance solutions if they are faced with one of the following challenges:

1. Their bank lines are capped
2. They are deemed too small by banks
3. Need financing on an accelerated timeline given growth opportunities

Trade finance provides both an efficient and valuable working capital financing solution to these companies.

IS IT THE RIGHT TIME TO INVEST?

The current market environment is characterized by:

• Decline in credit quality and rising corporate leverage
• Elevated valuation across all asset classes with increased uncertainty creates risk to long duration assets

• Rising interest rate environment increases risk of capital loss in traditional fixed-income
• Compression of yield across all sectors of fixed income