According to today's Wall Street Journal, bank loan mutual funds are feeling a bit of pain as of late.In "A Stumble for Bank Loan Mutual Funds", Ian Salisbury reports that bank loan mutual funds are experiencing declines in value and a significant increase in withdrawals by investors.
Bank loan mutual funds own loans, typically below investment grade, that banks have issued to corporations and then resold to institutional investors. The LMP Corporate Loan Fund, construed by some as a barometer of the loan market, has declined 8.8% in the past month alone. According to its SEC filings, the LMP Corporate Loan Fund buys pieces of loans in amounts of up to $4.0 million for such companies as Delta Airlines, Hertz Corporation, Gold Toe (think socks), Leiner Health Products and Del Monte to name a few.
What's led to the decline in value and the investor redemptions? Spillover from the sub-prime market and a tightening of corporate credit to fund large corporate leveraged buyouts.
The impact to the small business market? It is my opinion that there will be a tightening of credit terms and availability in all markets. When it will actually start to be felt in the market for small business loans is anyone's guess. All I know is that my phone has been ringing a little more as of late with calls from small businesses seeking financing.
My advice to small businesses seeking financing? Don't get caught with your pants down. Pay attention to your income statement and balance sheet and make sure that you have good relationships with your financing sources. And remember, there are a lot of ways to get a business loan if the bank says "no"!
Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!
Related Tags: Wall Street Journal, bank loan mutual funds, business loans, LMP Corporate Loan Fund
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