Niche U.S. finance firms grease global trade of masks,
gloves
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[July 14, 2020] By
Anna Irrera and Lawrence Delevingne
NEW YORK/BOSTON (Reuters) - From specialty finance firms to boutique
investment banks, a disparate mix of small financiers is bankrolling a
U.S. gold rush for masks, gloves and other supplies in the wake of the
novel coronavirus.
These financiers stepped in as demand for personal protective equipment
- "PPE" for short - exploded in recent months, but large banks largely
shied away from the trade because many of the deals were too small or
the companies involved too risky, according to interviews with
financiers, brokers and bank executives.
Technology investor Benjamin Kosinski's VendorTerm, for example,
normally offers online invoice financing to technology startups. But the
company started financing several PPE deals after some of the companies
it normally funds branched out in the market, Kosinski said.
The New York-based startup is offering to finance deals smaller than $5
million in return for 5% to 10% of the total value of the order and a 5%
to 25% share of the profits, according to figures confirmed by Kosinski.
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Kosinski said the rates reflect the high level of risk involved and that
without financing many deals would not happen.
"Banks aren't doing it due to the high risk, and this is where
alternative lending and alternative financing can provide value and
capital," he said. "Without these deals, there would be less equipment
available."
In another case, Cambridge Wilkinson, a small New York-based investment
bank, in early May offered a distributor help securing financing in
return for a 5% cut of the total value of the funding, according to a
draft contract seen by Reuters.
A representative of Cambridge Wilkinson did not respond to requests for
comment. The investment bank's deal ultimately fell through because the
mask broker found another source of capital that was able to provide the
funding more quickly.
Some family offices and hedge funds have asked for up to 50% of deal
profits, according to Edward King of King Trade Capital. He said his
Dallas-based firm has provided "much less expensive" alternatives using
purchase order finance, especially for businesses new to the PPE market.
Much has been written about fly-by-night, distributor middle men
arranging deals and driving up prices of essential supplies during the
pandemic, but little is known about the financiers who fund various
distributors.
While they serve an essential purpose by greasing a complicated trade
that meets an urgent demand, some market participants said their
presence can drive up costs of these essential supplies.
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![](../images/071420PICS/busine47.jpg)
Various N95 respiration masks at a laboratory of 3M, which has been
contracted by the U.S. government to produce extra masks in response
to the country's novel coronavirus outbreak, in Maplewood,
Minnesota, U.S. March 4, 2020. REUTERS/Nicholas Pfosi/File Photo
![](http://archives.lincolndailynews.com/2020/Jul/14/images/ads/current/atlantabank_lda_SFARM_2019.png)
"It adds to the cost of the product and makes it more expensive," said
Murlikrishna Kannan, an anesthesiologist and the founder of Anesthesia Hygiene,
a medical equipment company that has been distributing coronavirus-related
supplies since the pandemic began. Kannan said he looked into a financing offer
over the past few months and opted not to go ahead with it in part because of
the cost, but may have to consider these options in the future.
In many cases, however, the fees these financiers are charging are in line with
what banks typically charge, according to trade finance experts. Banks can
charge 3% to 8% of transaction costs, depending on creditworthiness of the
borrowers, they said.
Several investors said their fees were justified because these transactions were
especially risky. Most involve multiple parties across the world, many new to
the market, they said. Things often go wrong, from shipments being delayed or
stuck at customs, to the price of transport rising unexpectedly. Fraud is also
common, they said.
Moreover, some manufacturers ask for payment upfront, making the role of
financiers crucial to keep trade flowing.
Revenue for the U.S. personal protective equipment sector is expected to surge
15.2% to $5.7 billion this year, as the industry responds to the coronavirus
pandemic, according to a May report by research firm IBISWorld.
Distributors and financiers said demand is expected to continue into the winter
as the economy reopens and masks, gloves and sanitizers remain essential
accessories for the foreseeable future.
"We are the key that's unlocking the solution," said Mead Welles, head of
Octagon Asset Management LLC, a trade and commodity finance firm.
![](http://archives.lincolndailynews.com/2020/Jul/14/images/ads/current/LPL_small%201.gif)
He said his fees are usually "well below" 2% of the total transaction cost.
(Reporting by Anna Irrera in New York and Lawrence Delevingne in Boston; Editing
by Paritosh Bansal and Matthew Lewis)
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