Commodities

Commodities have always been difficult and complex products to finance.

They typically have low margins and goods are traded cross border in jurisdictions where there may be a lack of trust between counterparties. This means that many financiers are hesitant to work with new or growing companies, as there is knowledge in the fact that if there is a sudden difficulty, shipment problem, quality issue or a counterparty acts incorrectly then it means that a previously profitable trade may cause major and disproportionate difficulty for the company. This is intensified as trades are larger and commodities are more specialised.

Commodity finance has historically been a specialist financing type. The reason for this perceived risk and enforcement. In the event that a lender is required to enforce security over goods and sell them – it is much easier to re-sell a shipment of toys than it may be on-sell scrap metal with low margins. This specialist knowledge has led to specialist funders who have a knowledge and ability to re-sell the underlying commodity, being the ones who are actually financing these types of commodity trades.