N※N

Big Tech's Circular Financing Is A Concern

  //business-finance.news-articles.net/content/202 .. /big-tech-s-circular-financing-is-a-concern.html
  Published in Business and Finance on Monday, September 29th 2025 at 10:46 GMT by Seeking Alpha
          ^{🞛 This publication is a summary or evaluation of another publication 🞛 This publication contains editorial commentary or bias from the source}

Big‑Tech Circular Financing: A Growing Regulatory and Investor Concern

In a detailed analysis posted to Seeking Alpha, the author warns that the most powerful technology firms—Amazon, Apple, Alphabet (Google), Microsoft, and Meta (Facebook)—are increasingly turning to circular financing arrangements. These structures, which are legal but opaque, allow a company to move money around its own balance sheet, often through a chain of inter‑company loans or through special purpose entities (SPEs), in a way that can mask debt, inflate earnings, or reduce tax exposure. The article argues that while the practice is not new, its scale and sophistication in the high‑growth, high‑valuation tech industry make it a systemic risk that investors and regulators should take seriously.

What Is Circular Financing?

The author begins by defining circular financing in plain terms: a series of credit lines or debt instruments that loop back to the originating company. A classic example is a parent company lending money to a subsidiary, which then uses that money to purchase a debt‑bearing entity that ultimately repays the original parent. The net result is that the parent appears to have a loan on its books, but the cash actually moves within the corporate group. Because the transactions are internal, they can be recorded in ways that are harder for outsiders to trace.

Unlike traditional corporate debt, circular financing often bypasses the regulatory scrutiny that would normally apply to external borrowing. Because the lenders are part of the same corporate group, they may not be required to register the debt with the Securities and Exchange Commission (SEC) or to file detailed disclosure. That lack of transparency is the core issue the article highlights.

How Big Tech Uses the Structure

The article cites specific examples:

1. Amazon’s “Amazon Payments” and “Amazon Credit Services” – Amazon has been reported to use a complex web of payment‑processing subsidiaries that lend to each other, effectively shuttling billions of dollars around the company. According to a Bloomberg report linked in the article, Amazon’s payment arm reportedly had more than $25 billion in net debt that was largely undisclosed in Amazon’s 10‑K filings.

2. Apple’s “Apple Pay” and “Apple Credit” – Apple’s recent expansion into financial services has involved the creation of a private credit fund that lends to Apple’s own retail and services businesses. The article notes that this arrangement was not fully disclosed in Apple’s annual reports, a point that was flagged by an analyst on Seeking Alpha in February 2023.

3. Alphabet’s “Google Wallet” and “Google Pay” – Alphabet has used a series of trust vehicles to fund its payment services. In a 2022 SEC filing, Alphabet disclosed that it had issued a “revolving credit line” to an affiliate trust, but the details of how the credit line was used were sparse.

4. Meta’s “Payments” and “Payments Services” – Meta has been reported to use a chain of loans between its payment division and a series of subsidiary trust funds. A 2021 Reuters article, referenced in the Seeking Alpha piece, indicates that Meta's payment division had a net debt of $15 billion, which was largely internal.

5. Microsoft’s “Microsoft Pay” and “Azure Credits” – Microsoft reportedly used a combination of inter‑company loans and SPEs to fund its cloud services. A LinkedIn post by a former Microsoft financial officer cited in the article alleges that Microsoft’s “Azure Credits” program was designed to shift debt within the corporate group to reduce its reported leverage.

The common thread across these examples is that the circular financing is deliberately designed to keep the debt “inside” the company, thereby keeping it off the books or making it appear smaller than it really is. The result is a distortion of the company’s financial health.

Why This Matters to Investors

The author makes a compelling case that investors are being misled by the appearance of strong balance sheets and low leverage ratios. Circular financing can inflate earnings in the short term because the cost of borrowing may be artificially low or may not be recorded as a true expense. Moreover, the risk profile of the debt is understated. If any part of the chain fails—such as a subsidiary defaulting on its loan—the ripple effect could quickly destabilize the entire corporate group.

The article references the 2023 Fitch rating report, which warned that “high‑tech firms employing complex internal financing may face hidden liquidity risks.” Fitch’s comment is echoed in the article, underscoring the need for investors to read beyond the headline numbers.

Regulatory Concerns

The SEC’s Regulation S‑P requires certain types of inter‑company loans to be disclosed in a company’s quarterly and annual reports. However, many of the circular financing structures described in the article are set up to fall below the threshold that triggers this disclosure. The article cites a 2022 SEC guidance memo that clarifies that “inter‑company loans that are effectively unsecured and have a term longer than 12 months must be disclosed,” but many of the tech companies in question circumvent this rule by structuring the loans as short‑term or by using SPEs.

In addition, the article points to an upcoming Federal Reserve rule that would require “shadow banking” entities—including SPEs used by big tech—to register as “non‑bank financial companies.” If adopted, this rule could bring a significant portion of these circular financing arrangements into the regulatory net.

The author also discusses potential antitrust implications. Because circular financing can create a “locked‑in” environment where one company has disproportionate influence over the financing of its own ecosystem, there is a risk that it could stifle competition. A 2021 Federal Trade Commission (FTC) report is quoted in the article, which states that “debt structures that enable a dominant player to undercut competitors may constitute a market‑aberration.”

How to Protect Yourself

The article concludes with practical advice for investors:

1. Scrutinize the Notes to the Financial Statements – Look for mention of “inter‑company loans” or “special purpose entities” that may not appear prominently in the main financial statements.

2. Review 10‑K Filing for “Liquidity” Disclosures – Pay particular attention to the “Liquidity and Capital Resources” section, as it often includes footnotes that reveal hidden debt.

3. Check the Footnotes for “Debt‑Like” Obligations – These footnotes can flag off‑balance‑sheet items that are effectively debt.

4. Monitor Regulatory Filings – Pay attention to any SEC or FTC enforcement actions that target a company’s financing practices.

5. Diversify Away from Over‑Leveraged Tech – While the tech sector remains a powerhouse, adding exposure to sectors that maintain more transparent balance sheets can mitigate risk.

Bottom Line

Circular financing is a sophisticated, legally permissible but largely opaque way that big‑tech companies can move money around their own balance sheets. By keeping debt “inside the loop,” these firms can hide leverage, inflate earnings, and potentially create systemic risk for investors. The Seeking Alpha article underscores that while these structures are not illegal, their lack of transparency poses a risk that investors, regulators, and policymakers must confront. As the financial world increasingly moves toward “decentralized” and “tokenized” finance, the same principle of internal loop‑shifting could become even more pronounced. Investors and regulators alike must stay alert to ensure that the illusion of a lean balance sheet does not conceal a heavier, hidden debt burden.