Hidden Risks in Business Credit: What to Watch For in 2025 – Atradius Podcast

Strategies to uncover credit risk have changed over the years.

Before the 2007 financial crisis, credit risk underwriters meticulously analyzed financial statements to identify potential red flags. These evaluations focused on mark-to-market accounting, derivatives, hedging strategies, off-balance-sheet transactions, legacy costs, and complex capital structures. While these factors remain essential, today’s financial landscape introduces new, less tangible risks that require careful consideration.

By: Bob Wanuga and Tobechi Mlemchukwu

Here are seven key areas to watch in 2025:

Supply Chain Vulnerabilities

As the pandemic demonstrated, disruptions to supply chains can cripple even the strongest companies. If a customer relies on a limited number of suppliers, their ability to maintain or scale operations is a significant risk factor. Geopolitics, tariffs, wars, and climate-related disruptions all play a crucial role in long-term sustainability.

Tariffs and Sanctions

With a new U.S. administration, tariffs are back in focus. A 10-25% increase in input costs can significantly impact profitability. Customers will have to determine whether or not they can pass these costs along in their marketplace in order to absorb them. Additionally, ensuring that a customer does not appear on any lists maintained by the Office of Foreign Assets Control (OFAC) is critical—violating sanctions can result in substantial fines and legal consequences.

Technological Disruption & AI Evolution

Artificial intelligence is transforming industries, but we are still in the early stages of determining winners and losers. With massive investments in AI and computing power accelerating change, companies that fail to adapt may struggle to compete. For example, just recently, DeepSeek’s AI advancement wiped $1 trillion in market value in mere hours when investors panicked and the stock dropped in price rapidly. The brisk evolution of AI and emerging technologies demands constant reassessment of business viability.

Adaptability & Workforce Shifts

As the workforce ages, younger and less experienced professionals are increasingly driving innovation. Unlike seasoned professionals who may be constrained by past failures, they are willing to challenge norms and leverage new technologies by being more willing to ask, “why not?” when trying something new. Businesses must be open to transformation or risk becoming obsolete.

Refinancing Risk

During the pandemic, companies used leverage for a myriad of reasons. Now, some of that debt is starting to come due and many companies planned on refinancing when rates lowered. However, interest rates continue to remain stagnant and risk premiums continue to rise. In addition, companies that are not performing well will have less chance to refinance at a lower rate. Customers unable to refinance their debt and better manage interest expenses, may face a greater insolvency risk.

Private Equity Ownership

Many companies backed by private equity firms benefited from a low-interest-rate environment, using leverage for acquisitions and inflating their balance sheets. If a private equity-owned company is struggling with market volatility, regulatory or political uncertainty, or ongoing operating losses, it may become a candidate for an exit. In most cases, private equity exits are unfavorable for unsecured creditors.

Government Regulation and Policies

Just two months into 2025, the new administration has introduced budget cuts, labor reductions and regulatory and policy changes, forcing companies to adapt quickly. Many businesses are struggling to find solutions in this shifting landscape. Customers need to evaluate whether they can withstand a policy change that may disrupt their end customer’s business and ability to pay.

Ultimately, cash flow remains the foundation of creditworthiness. How a company generates cash, the sustainability of its revenue streams, and the quality of its earnings are more important than ever. With business models evolving rapidly, understanding a company’s capital structure, liquidity access, and ability to generate consistent cash flow is critical for making informed credit decisions in 2025.