Bank Lending - Sharpest Decline Since 1942

Shocker! U.S. banks last year posted their sharpest decline in lending since 1942 according to today's Wall Street Journal (subscription required).

I'm trying to figure out why this article was front page headline worthy for The Wall Street Journal no less. It's old news.

Senior bank lending officers have been reporting for two years about tightening credit. In fact, they tightened credit so much, they can't tighten any more.

Many banks are still amongst the walking wounded due to troubled commercial real estate loan portfolios. Yesterday, the FDIC announced its problem bank list hit a 16 year high of 702 troubled institutions. Many of these banks will likely fail and others will be unable to lend in support of an economic recovery for a long time to come. The FDIC shuttered 140 banks in 2009 and 20 banks year-to-date 2010.

In the meantime, the Commercial Finance Association (CFA) just released its Quarterly Asset-Based Lending Index, Q4 2009, revealing continued stability and signs that U.S. businesses are seeking alternative sources of stable funding from non-bank, asset-based lenders. In the fourth quarter of 2009, total committed credit lines grew by 1.2 percent among asset-based lenders, while 50 percent of respondents reported an increase in new credit commitments.

By the way, Harry Reid's stripped down jobs bill just stripped out additional funding for SBA small business loans. The original $85 billion "jobs" bill included additional funding for the SBA to continue offering small businesses enhanced loans guarantees and elimination of guarantee fees. The SBA just exhausted its $855 million of stimulus funds which it claims resulted in over $20 billion of loans to small businesses in the last 12 months.

Notwithstanding all of the backwards looking news, I am seeing the green shoots of recovery. A couple of very large banks may be feeling the populist pressure to pump up lending and are adding to their lending teams. Even Huntington Bank, notwithstanding five consecutive quarters of losses, has announced it is doubling its annual small business lending and has announced it will originate $4 billion of new loans in the next three years.

Need help finding the right lender or telling your story the right way for your California business? Read "Matchmaking for Business Loans" and give me a call!

Tags : small business , bank loans , SBA loans , asset based loans , Commercial Finance Association , Huntington Bank

Asset Based Lending Grows

Asset based lenders have stepped up to fill the capital gap caused by the credit crunch for borrowers both large and small according to The Wall Street Journal (subscription required).

According the Journal, asset based lending may have increased by double digits in 2009 after an 8.3 percent increase in 2008. Given the article was focused on small business, it would have been more interesting had the Journal been able to learn the percentage growth of asset based lending for deal size less than $10 million.

The Journal notes that drawbacks of asset based loans include relatively high interest rates. Asset based loans can range as high as 35-40 percent per annum when a borrower is using factoring or purchase order financing. However, there are some lenders that will provide asset based loans at rates in the single digit range. Even the SBA has a program that provides asset based lines of credit at rates currently below 10 percent!

Also this past week, the Federal Reserve's January 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices was released.

The January survey indicated that commercial banks generally ceased tightening standards on many loan types in the fourth quarter of last year but have yet to unwind the considerable tightening that has occurred over the past two years.

Expect to see asset based lending continue to grow in 2010!

Need help finding the right lender or telling your story the right way for your business? Read "Matchmaking for Business Loans" and give me a call!

Tags : Asset based loans , factoring , purchase order financing , lines of credit , SBA loans

Who Will Fund Inventory Growth?

GDP grew at its fastest pace in six years in the last three months of 2009, expanding at a 5.7 percent yearly rate over the previous quarter according to The Wall Street Journal (subscription required).

The largest portion of the growth, 3.4 percentage points, came from businesses shrinking inventories more slowly than in the previous quarter to accommodate increased demand. Shrinking inventories means increased production to prepare for future sales increases.

One can argue about how much of the inventory buildup came from one-time events such as government stimulus programs, but one thing is clear. Businesses will have to increase inventories as the economy recovers.

Where will the money come from to fund the inventory growth is a bigger question.

I know very few bank or commercial finance lenders eager to lend for inventory increases. In fact, one middle market commercial banker told me at lunch that inventory increases are the last thing he wants to fund. Don't expect to see improved appetite for inventory lending until cash flow improves.

Some asset based lenders will provide lines of credit when there the borrower is profitable and subject to sublimits tied to accounts receivable. I also know one lender who will lend against inventory only in amounts up to $10 million. The terms are tough and the pricing is not for the faint of heart.

Need help finding the right lender or telling your story the right way for your California business? Read "Matchmaking for Business Loans" and give me a call!

Tags : inventory loan , GDP growth , line of credit , working capital