Banks Walked Away From a $2.6 Trillion Market. Private Credit Walked In.
43% of North American business invoices are overdue. Trade finance has dried up. And a massive opportunity just opened for investors who understand what’s happening.
By Taimour Zaman | December 2025
Here’s a number that should stop you cold: $2.6 trillion.
That’s the current gap in global SME trade finance—up from $1.5 trillion just five years ago. Seventy-three percent more demand for capital that moves goods across borders, and nowhere near enough supply to meet it.
In North America, the stress is even more acute. Forty-three percent of B2B invoices are overdue. Five percent are written off as losses. Payment terms are stretching while cash reserves shrink.
And the banks that used to solve this problem? They left.
Not loudly. Not dramatically. But definitively. And if you’re trying to get a letter of credit, finance inventory, or bridge a receivables gap in 2025, you’ve already felt their absence.
The money didn’t disappear. It moved. The question is whether you understand where it went—and what that means for your business or your portfolio.
What Happened to Bank Trade Finance?
Regulation happened. Specifically, Basel III Endgame.
Under new capital rules, banks face steep reserve requirements for holding unrated assets. Trade finance paper—letters of credit, receivables, inventory loans—falls squarely into that category.
The math stopped working. So banks adapted.
Citigroup, JP Morgan, and Wells Fargo didn’t exit trade finance entirely. They just stopped doing it directly. Instead, they expanded credit lines to private credit funds by 145% over five years. The banks lend to the lenders. The lenders lend to businesses.
It’s cleaner for them. Less capital required. Lower regulatory scrutiny. And it shifts the risk to someone else’s balance sheet.
By mid-2025, US systemically important banks had cut direct lending to nonbanks from 80% to 70%. Regional banks absorbed some of that. Private credit absorbed the rest.
If your business generates less than $50 million in EBITDA and needs trade financing, your relationship manager probably can’t help you anymore. That’s not personal—it’s regulatory math.
Why Private Credit Can Do What Banks Can’t
Same assets. Different rules.
When a bank holds trade finance paper, regulators require capital reserves against potential losses. When a private credit fund holds identical paper, no such requirement exists.
This gap—regulatory arbitrage, if you want the technical term—allows private lenders to profitably price deals that banks can’t touch.
The instruments are straightforward:
- Standby Letters of Credit (SBLCs): Payment guarantees that let businesses secure contracts or satisfy counterparty requirements without locking up cash.
- Receivables Financing: Advances against outstanding invoices, turning 60-90 day payment terms into immediate working capital.
- Inventory Finance: Loans secured by stock on hand, freeing up operating cash tied to unsold goods.
- Asset-Based Lending: Credit lines backed by company assets rather than earnings projections.
None of this is exotic. It’s the basic infrastructure of cross-border commerce—infrastructure that banks owned for decades and have now largely abandoned.
Is Private Credit Actually Safe Right Now?
The honest answer: safer than skeptics claim, riskier than cheerleaders admit.
Here’s what the data shows:
- Proskauer’s Private Credit Default Index: 1.76% for US senior-secured loans in Q2 2025, down from 2.42% in Q1. Held steady at 1.84% through Q3.
- Fitch Ratings: 5.2% in October, climbing to 5.7% in November—highest since February.
- Leveraged Loan Market: 1.36% trailing twelve-month defaults, but 4.37% including distressed exchanges.
- Trade Finance Specifically: 5% of long-overdue invoices became bad debts.
Why the spread between 1.84% and 5.7%? Segmentation.
Senior-secured deals with disciplined underwriting are performing. Aggressive leveraged positions from the zero-rate era are struggling. The asset class isn’t uniform—and treating it that way leads to bad allocation decisions.
Trade finance carries structural advantages that mitigate risk: short duration (typically 30-180 days), tangible collateral, and demand that persists regardless of economic cycles. Businesses need working capital to operate. That doesn’t change when GDP softens.
Who’s Feeling the Squeeze Right Now?
Four categories of businesses face acute trade finance gaps—meaning they’ll likely need SBLC or working capital solutions within the next 90 days.
SMEs in Agriculture, Food, and Manufacturing
- The numbers: 43% overdue invoices. 5% bad debt write-offs. Direct exposure to 10-25% tariffs on Canadian and Mexican inputs.
- What they need: Export guarantees. Inventory financing. Anything that bridges seasonal cash gaps without requiring pristine credit.
- Why banks won’t help: EBITDA under $50 million. Unrated. Sectors that Basel III treats as higher-risk.
Cross-Border Importers and Exporters
- The numbers: Tariff volatility has blown up established supply chain economics. Buyers are stretching payment terms to protect their own liquidity.
- What they need: Letters of credit to guarantee payment. Receivables financing to accelerate cash conversion.
- Why banks won’t help: Uncertainty. Banks hate uncertainty more than they hate low returns.
Specialty Finance Companies
- The numbers: Rising distressed exchanges in portfolios. Funding sources under pressure. Rate volatility squeezing margins.
- What they need: Trade finance facilities to refinance working capital and maintain liquidity.
- Why banks won’t help: Lending to lenders still requires capital—and regionals that entered this space are already stretched.
Cleantech and Infrastructure Projects
- The numbers: H1 2025 fundraising dropped to $47.7 billion despite ECA prioritization of climate investments.
- What they need: SBLC-backed bridge loans. Capital for overseas expansion. Anything that doesn’t require investment-grade ratings.
- Why banks won’t help: Long duration. Construction risk. Complex structures. Everything Basel III punishes.
What Should Investors Take From This?
If you allocate to private credit—or you’re considering it—trade finance deserves a closer look.
Three structural advantages:
- Duration. Most trade finance matures in 30-180 days. You’re not locked into multi-year positions that bleed when rates move.
- Collateral. Receivables, inventory, and letters of credit are tangible assets with real recovery value. If a borrower defaults, you’re not hoping for a good outcome in bankruptcy court.
- Demand stability. Working capital isn’t discretionary. Businesses need it to operate. Recessions slow trade; they don’t stop it.
Current yields reflect the supply-demand imbalance. Banks left. Demand didn’t. Pricing favors those willing to step in.
The window has limits. Private credit’s growth will eventually attract regulatory attention. But today, the arbitrage is real and the stress indicators are public.
Bottom Line:
North American banks made a calculated exit from direct trade finance. The regulation made it expensive. Partnerships made it unnecessary.
Their departure left a $2.6 trillion gap that private credit is filling—not through reckless risk-taking, but through structural advantages that allow different pricing and appetite.
For businesses: if your bank stopped returning calls, alternatives exist. SBLCs, receivables finance, and inventory loans are available through private capital markets.
For investors: trade finance is the segment of private credit with the shortest duration, the hardest collateral, and the most persistent demand.
The data is clear. The opportunity is documented. The only question is who acts on it.
Taimour Zaman is the Founder of AltFunds Global, a Switzerland-based private capital advisory firm specializing in alternative financing solutions. With over three decades of experience in trade finance and structured capital markets, he advises accredited investors and business owners seeking alternatives to traditional bank financing in the $1M–$500M range.
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