Why Private Lenders are Essential for Commodity Trade Finance

by:

Finance

The financial pressure on investors and owners of trading firms can be reduced if more private lenders are allowed to offer commodity trade credit.

The banks have provided funding for key players in the commodity trading sector for many years. However, the economic changes and shifts in interests have made it quite difficult for the trading firms to access the funds they need to stay profitable in business.

The global economic changes have compelled banks to make changes in line with reviewing their stance to offer long-term loans to trading firms. In the cases where a long-term loan is offered, the terms and conditions may be too stringent for the trading firms to comply.

The commodity market is an essential part of every economy regardless of the region. It is important to support the commodity market to grow existing businesses and encourage new investors in different sectors. A thriving commodity market can easily translate into a better economy.

What are the Issues Hindering the Banks from Providing the Needed Funds to Trading Firms?

Let’s have a look at some of the reasons banks have become more reluctant to offer trading loans to the firms in different industries.

Global Economic Crisis

The banks have suffered huge losses during the global economic crisis, for example, the horrific financial crisis that happened in 2008 caused many banks to shutdown branches and scale-down their lending activities to save the financial institution.

Unfriendly Economic Policies

Many banks have suffered losses due to the economic policies in different parts of the world, causing a restriction in their lending activities.

In recent times, the banks have seemingly favoured investing in equities and bonds to avoid the risks in the commodities trading sector, according to Investopedia.

With these changes the trading firms have been left stranded, there is a demand for products but the inability to access funds has caused an imbalance in the commodities trading sector.

This is why private lenders should be encouraged to invest in the commodities market. There are a few banks willing to provide funding to trade firms, but the conditions are not very encouraging. The trade firms who access these loans can run at a loss.

Here are some of the benefits private lenders can bring to the commodities market to help trading firms.

Quick Access to Trade Credit

With the introduction of more private lenders in the trading sector, business owners can access the funds they need to perform trading activities quickly.

Economic Growth

There will be an improvement in different economies all around the world if the trading firms can carry out their businesses without the limitation of inadequate funds.

Risk Distribution

The lending structure used by private lenders can promote a better distribution of risks to the benefit of the lender and the trading firms.

Long-Term Loans

Trading firms can secure long-term loans from private lenders. This can be the start of a growing business relationship between the trading firm and private lenders with the renewal of loan agreements at the end of the term.

There are many organisations in the market interested in providing trade credit to bridge the widening funding gap in the commodities market. For example, Audentia Global, a capital management firm, offers trading firms an opportunity to access innovative private credit needed by trading firms to grow their businesses. Dealing with private lenders is a great option. It is expected that the introduction of private lenders to the trading sector will bring significant changes that can improve the economy.

Leave your vote

0 points
Upvote Downvote

Comments

0 comments

Leave a Reply

Your email address will not be published. Required fields are marked *

Log In

Forgot password?

Forgot password?

Enter your account data and we will send you a link to reset your password.

Your password reset link appears to be invalid or expired.

Log in

Privacy Policy

Add to Collection

No Collections

Here you'll find all collections you've created before.