Impact of Private Credit Stress on Trade Finance

Trade finance and private credit suffered a few shockwaves towards the end of 2025 (First Brands Group (FBG), Tricolor, and Cantor Group), and we’re still feeling the impact of those failures in the summer of 2026.

At the same time, rising defaults in the private credit market are impacting trade finance in 2026.

Not unlike the trade finance sector, private credit is a somewhat hard sector to quantify. One of the most accurate assessments is from Morgan Stanley in October 2025, giving the market a current size of around $3 trillion, and on track to reach $5tn in 2030.

The Financial Stability Board (FSB) says in a May 2026 report that private credit “is essential for supporting real economic activity, particularly in underserved sectors, helping to bridge the financing gap that can exist when banks are unable or unwilling to lend”.

Until around a year ago, private credit was seen as low-risk, with lower yields than some financial products, but overall an attractive offering for institutional and retail investors.

However, as GTR notes in this report, “cracks in the private credit market were starting to appear” in 2025, and that’s continued ever since.

What stress is the private credit market under right now?

In many ways, and perhaps unsurprisingly considering the national and global economy right now, the various private credit-linked failings were only the beginning.

Since then, defaults in the core sectors served by private credit have increased. According to GTR:

“Fitch Ratings said in March 2026 that its Privately Monitored Rating, which tracks defaults among US-based companies that hold private credit debt, rose to 10% in the first quarter of this year.”

This default rate is “up from around 9.2% the previous year and 8% in 2024. Of the 302 largely mid-market companies monitored by Fitch, 28 borrowers had at least one default event. The total number of defaults was 38, spread across several sectors.”

Other fears in private credit right now include the following:

Exposure to the software sector, which is around 21%. Between large-scale sell-offs in public markets and the disruption of AI (including fears of an AI bubble), this is a genuine concern.
The 10-year yield relative to volatility, known as the Sharpe ratio, is currently 1.23, which is double that of real estate (as of October 2025, Morgan Stanley Investment Management).
Industry watchdogs are paying closer attention to private credit. Much of that links back to the various failures that have rocked the sector, and that’s interwoven with unnecessary concern about trade finance.
There are likely to be unknown pockets of exposure and weakness within the sector. For example: “Banks may be providing revolving credit facilities to companies also borrowing from private credit funds, or insurers could be investing in funds while also providing funded reinsurance arrangements.”
One consequence of this nervousness is an increase in cash flow withdrawals. According to the FT: “$20bn [was withdrawn] in the first quarter of this year, with notable increases in requests at funds including Apollo, Ares, Barings, Blackstone, Blue Owl, Cliffwater and Morgan Stanley, among others.”

Several funds had to put gates and limits on cash withdrawals.

Now, even though things are settling down, it’s still worth asking how trouble in private credit should impact trade finance?

How does private credit stress impact trade finance?

Dominic Capolongo, our chief revenue officer (CRO), told GTR that asset managers are facing questions from wary investors “who are lumping working capital and private credit together”.

As a result, managers “are having to slow down origination of working capital, and are trying to educate investors on why it has a totally different risk profile”, he says.

That’s the main issue here: Investors are linking disruption in private credit with trade finance.

Capolongo adds that there has been blowback on the corporate side too.

“We’ve heard that some corporates are looking to do more traditional financing, like a collateralized revolver with a bank, rather than a working capital facility with an asset manager – just because they’re fearful that stakeholders might be a little jumpy with all the noise around private credit,” he says. “The number of opportunities is not as abundant as it was.”

“We’re seeing a lot of asset managers realizing that if they had a more diversified approach and more short-term working capital, they would be in better shape and wouldn’t have to slam down the gates.”

Dominic Capolongo, LiquidX CRO

💡Download our exclusive eBook: State of Trade Finance 2026 (Looking Ahead to 2027)

Looking ahead into 2027 for trade finance

Trade finance isn’t at risk. Nothing has changed in this sector, as far as risk profiles are concerned, including pricing in the ongoing impact of tariffs and other geopolitical disruptions.

However, the issue is the continued misunderstanding on the part of some investors and the damage that can do to this sector without realizing it.

Continuing that theme, Bos Smith, portfolio manager for US fund BroadRiver Asset Management’s trade finance strategy, told GTR:

“Trade finance managers may not be seeing redemption pressure directly, but we can still become collateral damage.”

“If you interrupt funding to a supplier, especially where the program is part of its working capital infrastructure, you may lose the relationship,” he says.

“Investors sometimes assume trade finance can be switched off and switched back on without consequence. In reality, the programs are relationship-driven. Suppliers value reliability and availability, not just price.”

One area of improvement is in risk controls. One asset manager, speaking on condition of anonymity, says the First Brands scandal had investors “concerned for a little while”.

“They asked a lot of questions and a lot of soul searching was going on,” they say. “But overall I would say it probably helps to have cases like this, because they reinforce the need for discipline. These events have certainly strengthened not just trade finance or working capital, but other corporate lending.”

Preventing future liquidity issues means making KYC more robust. Many companies in the trade finance industry are already working on this.

Banks and asset managers need a way to forecast demand, assess who’d be a good buyer for trade finance assets at spread, and reduce counterparty risk and being overexposed to any one organization, sector, or transaction type.

For example, if you are holding $500M in a $1bn portfolio of short-term consumer goods transactions, it might be worth diversifying your portfolio.

It should also be easier to see which parties you’ve sold to or bought from, preventing you from accidentally selling any financial tranches twice.

AI analysis can help make this easier, with automated alerts and rebalancing trigger points. Providing the flow of funding settles down in private credit, then any consequences for trade finance should return fully to normal.