Investing.com - Financial Markets Worldwide
Get 40% Off
Get 40% Off
🚨 Volatile Markets? Find Hidden Gems for Serious OutperformanceFind Stocks Now

As Lenders Look For Ways To Deploy Capital, Small Businesses Benefit

BySober Look
Published 05/08/2013, 12:45 AM
Updated 07/09/2023, 06:31 AM

U.S. corporations are enjoying some of the lowest borrowing costs in history. Even the more leveraged (high debt to earnings ratio) large and middle market companies are "fighting off" lenders willing to provide cheap credit. Junk loans now yield 3-5%, and spreads are continuing to tighten.

Junk loans yield

Existing loans are being "repriced" (converted) into debt with lower rates and looser covenants.

LCD: Falling new-issue spreads spurred a new round of opportunistic deal flow. In April, issuers cuts spreads on $36.7 billion of institutional loans, up from $24.7 billion in March. In all, issuers have now repriced $155.7 billion of loans or 28% of the S&P/LSTA Index, by 115 bps on average.

A great deal of this demand is coming from shadow banking - Business Development Corporations (BDCs), CLOs and even credit hedge funds. How can U.S. chartered banks (under regulatory pressure) possibly compete, when credit for large and mid-market firms is so readily available and cheap? One way is to expand lending into smaller business space, where sanity still prevails with respect to rates and leverage levels. And that's exactly what banks have been doing. The latest data from the Fed shows banks easing on underwriting standards for small company loans...

Percent of banks tightening standards on small business loans
... and tightening spreads.

Percent of banks increasing spreads on small business loans
While this development is great news for small businesses and the U.S. economy as a whole, it shows that credit may be approaching frothy levels. All this new liquidity from the Fed has to end up somewhere.

Latest comments

Install Our App
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.