How Geopolitical Tensions Are Reshaping Cross-Border Bank Loans and Supply Chain Finance

Geopolitical risk: A supplier wins a $5 million international order.

The buyer is credible. The demand is real. The purchase order is confirmed.

But there is a problem.

The supplier needs money to purchase raw materials, pay workers and manufacture the goods before receiving payment.

Normally, a bank might finance that working capital.

Now imagine the buyer is located in a country facing sanctions, trade restrictions or growing geopolitical tensions.

Suddenly, the financing becomes more expensive.

The bank requests additional documentation. The credit approval takes longer. The interest rate increases. The supplier may even find that its existing financing arrangement is no longer available.

The purchase order has not changed.

The business opportunity has not disappeared.

But the financial system supporting that transaction has become more complicated.

This is increasingly becoming a challenge for international businesses operating across fragmented global trade corridors.

And it raises an important question:

Can a business still depend on traditional cross-border bank financing when geopolitical risks are changing faster than its commercial relationships?

1) Geopolitical risk is no longer just a political problem

For years, businesses have treated geopolitical risk as something primarily relevant to governments, diplomats and international relations.

That approach is no longer sufficient.

Geopolitical tensions can directly affect the cost of doing business.

Trade restrictions can delay shipments. Sanctions can disrupt payments. Export controls can limit access to critical components. Changes in diplomatic relationships can influence how banks assess international borrowers.

According to a 2025 Bank of England working paper, a one-standard-deviation increase in geopolitical risk was associated with approximately a four-percentage-point decline in cross-border bank lending growth after one year.

The impact was particularly pronounced when sanctions were involved or when the bank and borrower were based in geopolitically misaligned countries.

This is important because international businesses do not operate independently of the financial system.

They depend on banks, insurers, payment providers and financing institutions to make global trade possible.

When these institutions become more cautious, businesses feel the consequences immediately.

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2) The hidden cost of geopolitical fragmentation

Global supply chains were traditionally built around efficiency.

Manufacturers sourced materials from the most competitive locations. Suppliers served customers across multiple countries. Banks financed transactions based on commercial relationships, creditworthiness and expected repayment.

But geopolitical fragmentation is changing these assumptions.

Companies are increasingly reconsidering where they manufacture, whom they buy from and which markets they serve.

The challenge is that changing a supply chain is expensive.

A manufacturer that previously sourced components from one country may need to identify alternative suppliers, renegotiate contracts, establish new distribution channels and maintain additional inventory.

These decisions create financial pressure.

And the consequences extend beyond operational costs.

The more fragmented global trade becomes, the more complicated its financing can become.

Research published by the IMF and CEPR has highlighted how geopolitical tensions are reshaping trade and investment flows, with countries outside major geopolitical blocs increasingly acting as connectors between different markets.

However, becoming a connector country does not automatically eliminate risk.

Businesses may gain access to new opportunities while still facing uncertainty around payments, compliance and financial relationships.

3) Why cross-border bank loans are becoming more complicated

Traditional international bank lending depends on several factors.

Banks assess the borrower’s financial position, repayment capacity, collateral, industry exposure and overall credit risk.

But cross-border lending introduces additional considerations.

Country risk

A company may be financially healthy but operate in a country facing political instability, restrictions on capital movement or economic uncertainty.

Banks must consider whether the borrower can repay even if local conditions deteriorate.

Currency risk

International loans may be denominated in currencies different from the borrower’s operating currency.

Exchange-rate fluctuations can increase repayment costs and create additional financial pressure.

Sanctions and compliance risk

Banks must ensure that transactions do not violate applicable sanctions, export controls or other regulatory restrictions.

This can require extensive screening of customers, suppliers, ownership structures and payment routes.

Concentration risk

A bank with significant exposure to one country, region or industry may become more cautious when geopolitical tensions increase.

The result?

Credit decisions that previously depended primarily on financial performance may increasingly depend on where a business operates and whom it does business with.

Research from the Federal Reserve and the BIS has documented how geopolitical tensions can reduce cross-border bank lending and influence the allocation of international credit. <Cite refs={[“turn430773search4″,”turn430773search12”]}/>

4) The supplier’s financing dilemma: Purchase order loans or factoring?

This is where the situation becomes particularly difficult for suppliers.

Consider a manufacturer that receives a confirmed purchase order from an international buyer.

The supplier needs financing before production begins.

There are two common financing approaches, although availability and terms depend on the transaction, lender and jurisdiction.

Purchase order financing

Purchase order financing helps a business fund the costs associated with fulfilling an order.

The financing may be used to purchase raw materials, pay suppliers or cover production expenses.

However, geopolitical risk can affect the lender’s willingness to finance the transaction.

The lender may increase its risk premium, reduce the financing amount, demand additional collateral or decline the transaction altogether.

For a supplier operating on thin margins, even a modest increase in financing costs can significantly reduce profitability.

Invoice factoring

Invoice factoring allows a business to sell or assign eligible receivables to a financing provider in exchange for earlier access to cash.

This can help suppliers bridge the gap between delivering goods and receiving payment.

But factoring is not automatically cheaper.

If the buyer operates in a higher-risk jurisdiction, the factoring provider may demand a larger discount or decline to purchase the invoice.

The supplier may therefore face a difficult choice:

Accept more expensive purchase order financing, agree to a costly factoring arrangement, or walk away from a commercially attractive order.

That is a serious problem.

Because a business should not have to choose between profitable growth and financial survival.

5) Why banks are changing their approach to global trade finance

Banks are not necessarily withdrawing from international business altogether.

Instead, many are becoming more selective about how they allocate capital.

They may reassess country exposure, increase monitoring of vulnerable borrowers and adjust their lending conditions.

Some may shift financing towards industries considered strategically important or less exposed to geopolitical disruption.

Others may continue serving higher-risk markets through local subsidiaries or alternative structures, subject to regulatory requirements.

The Federal Reserve’s research on geopolitical risk and global banking has found that banks can reduce cross-border lending to countries experiencing elevated geopolitical risk while continuing to operate through foreign affiliates.

This creates an important distinction.

A bank’s willingness to finance a transaction is not determined solely by whether the business is profitable. It is also influenced by the bank’s own risk appetite and exposure.

For suppliers, that means a financing relationship that worked last year may not necessarily work under today’s conditions.

6) Can open finance and real-time data help solve the problem?

Technology offers a potential way forward.

But let’s be realistic.

Digital platforms cannot eliminate geopolitical risk.

They cannot make sanctions disappear, guarantee a shipment reaches its destination or force a bank to approve a loan.

What they can do is reduce information gaps and improve the speed and quality of financial decisions.

Open finance

With appropriate permissions and regulatory safeguards, open finance can enable financing providers to access relevant financial information from participating institutions.

This can give lenders a clearer picture of cash flow, receivables, transaction history and financial performance.

For smaller suppliers, this may help reduce dependence on traditional collateral-based lending.

Real-time transaction data

Purchase orders, invoices, shipping records, inventory information and payment histories can help financing providers assess the underlying transaction.

The more reliable and timely the information, the better the lender may be able to evaluate risk.

Digital supply chain visibility

Tracking systems can provide information about shipment locations, delivery milestones and potential delays.

This can help businesses identify problems earlier and make better decisions about inventory, cash flow and financing.

Alternative financing platforms

Digital financing platforms can connect eligible suppliers with banks, non-bank financial institutions and other funding providers.

However, the quality of underwriting, transparency of pricing and regulatory compliance remain essential.

Technology can improve financing decisions.

It cannot replace sound risk management.

7) The emerging opportunity: Financing based on the entire transaction

Traditional lending often begins with the borrower.

How much revenue does the company generate? What assets does it own? What is its credit history? How much collateral can it provide?

These are important questions.

But international supply chain financing also needs to examine the transaction itself.

Who is the buyer?

Is the purchase order genuine?

What goods are being supplied?

Where are they being shipped?

What are the payment terms?

What is the expected cash flow from fulfilling the order?

A supplier with limited collateral may still have a commercially valuable transaction.

This creates an opportunity for transaction-based financing models, where lenders evaluate a combination of supplier creditworthiness, buyer quality, transaction documentation and supply chain information.

The model is not risk-free.

But better information can potentially help financing providers identify transactions that traditional credit assessments might overlook.

8) What international suppliers should do now

Businesses operating across borders need to reconsider how they manage working capital.

Here are five practical steps.

1. Diversify financing relationships. Avoid depending entirely on one bank or financing provider for international transactions.
2. Understand your geographic exposure. Review suppliers, customers, currencies and shipping routes that could be affected by geopolitical developments.
3. Negotiate payment terms carefully. Longer payment cycles increase working capital requirements and financing costs.
4. Improve financial visibility. Maintain accurate, timely records of invoices, receivables, inventory and cash flow.
5. Build contingency financing plans. Consider what happens if an existing credit facility becomes more expensive, delayed or unavailable.

The goal is not to eliminate every possible risk.

It is to ensure that one unexpected event does not bring an otherwise healthy business to a standstill.

Final thoughts: Global trade needs a more resilient financial system

Geopolitical fragmentation is reshaping international trade.

But its impact goes far beyond tariffs, shipping routes and political relationships.

It is also changing how businesses access capital.

Cross-border bank loans may become more selective. Purchase order financing may become more expensive. Factoring arrangements may face tighter eligibility requirements.

For international suppliers, these changes can determine whether they accept an order, expand into a new market or maintain existing operations.

Open finance, real-time data and digital supply chain infrastructure offer opportunities to improve visibility and financing decisions.

But the real transformation requires more than technology.

It requires financial institutions, businesses and financing platforms to rethink how they assess risk and allocate capital.

Because the future of global trade will not depend only on who can manufacture the best products at the lowest cost.

It will also depend on who can finance those products reliably when the world becomes uncertain.

And that is where the next major opportunity in supply chain finance could emerge.