Global disruptions have spotlighted the need for robust and agile supply chains, but as rising borrowing costs imperil the stability of smaller suppliers, a holistic approach becomes vital to ensuring all links in the chain remain robust.

Recognising this client need, J.P. Morgan has introduced a pre-shipment finance programme in the US, which leverages its established supply chain finance (SCF) rails to provide early-stage capital, especially to minority and diverse-owned suppliers – driving end-to-end resilience that encompasses every facet of the supply chain.

In this Industry Perspective, Dominic Giordani, executive director, North America supply chain finance product management at J.P. Morgan, explains how this initiative not only addresses liquidity challenges but also supports supplier relationships that are more collaborative from the start, ensuring businesses can navigate uncertainties while fostering an inclusive economic landscape.

Q: How does J.P. Morgan’s pre-shipment finance programme enhance supply chain resilience?

Giordani: If large corporates have learned anything from the last few years, it’s that diversity within supply chains is key to building resilience and adaptability.

We’re seeing more appetite from our clients to engage with a wider selection of suppliers, often as part of specific supply chain diversity, equity and inclusion (DEI) initiatives. However, this is often easier said than done, since small businesses may not be well-capitalised or well-resourced enough to ramp up production in order to fill a larger purchase order when it comes.

By providing impact capital to this segment of underrepresented businesses, we are injecting liquidity into the part of the supplier base that needs it the most, as well as ensuring more stability for our clients’ supply chains.

Q: Small companies often find it difficult to obtain pre-shipment financing because traditional solutions tend to be geared towards post-shipment, post-acceptance solutions. How are you closing this gap?

Giordani: This is a new way of thinking around providing working capital to this underserved small business segment, which often has fewer channels to access bank lending.

Given the current rising rate environment, it is increasingly difficult for small businesses to access the working capital finance they need. While initiatives such as US Small Business Administration loans go some way to help, borrowers need to meet strict eligibility criteria and the process is often quite slow. With this programme, we are making it very easy and streamlined for a small business to get a working capital loan at the very beginning of the process, so long as they have a good commercial relationship with their buyer – and we’re also securing a competitive rate.

J.P. Morgan is putting funds into a securitised structure, and then we work with qualified community development financial institutions (CDFIs), who carry out the loan servicing on our behalf. We are currently collaborating with Community Reinvestment Fund, a large CDFI based out of Minnesota. They understand the market and are top-tier in underwriting loans for small businesses.

The upside of this product is that it does not require an underlying purchase order or invoice. Instead, it is linked to the holistic commercial relationship a supplier has with a buyer, which is a key differentiator in the market and means that suppliers can achieve increased financial stability earlier in the cash conversion cycle.

If a supplier gets a large purchase order, they can easily reach out to J.P. Morgan as part of the pre-shipment programme, and then get underwritten for a loan.

Q: As the cost of traditional lending rises, how important is it for the bank to contribute to greater awareness of trade and supply chain finance among SMEs and minority-owned businesses who might be new to the concept?

Giordani: Our initiative is recalibrating the trade finance landscape by enhancing financial literacy among smaller suppliers, particularly within the SME and minority-owned business segment.

Suppliers can use the funds from our pre-shipment finance programme for essential aspects like payroll and inventory, which further solidifies their role in the supply chain. As they become integrated into the SCF cycle, they benefit from lower rates and can use the generated cash flow to settle their initial loans. This creates an efficient, self-sustaining loop that recirculates capital within the supply chain, delivering stability and growth for these vital enterprises.

By introducing these businesses to end-to-end supply chain finance – and not just as a concept but as a tangible service with accessible capital – we’re expanding their financial toolkit. This empowerment enables them to scale up, meeting larger orders and contributing more robustly to their respective supply chains. For the buyers, it’s an opportunity to engage with a more diverse supplier base with minimal risk. And for J.P. Morgan, it’s about creating a holistic solution that drives financial inclusion, fortifies supply chains, and creates a win-win-win scenario in the marketplace.

Ultimately, our pre-shipment finance programme is a testament to our commitment to financial inclusion, offering an innovative and necessary support system that benefits all participants in the trade finance ecosystem.

Q: How does the pre-shipment finance programme fit into J.P. Morgan’s broader efforts to promote sustainability in supply chains?

Giordani: Our pre-shipment finance programme is a strategic enhancement to our ESG offering, where, in collaboration with third-party rating providers, we enable buyers to incentivise their suppliers with discounted finance rates based on ESG performance. This programme goes a step further by offering tailored loan programmes to qualified small businesses earlier on in the cash conversion cycle.

By committing our own capital and expertise to this programme, we’re investing directly in the success and sustainability of our clients’ supply chains. This isn’t just a product; it’s an end-to-end solution where everyone involved has a stake and stands to benefit.