Business borrowers are turning to financial institutions other than banks, the company said. Biz2Credit Loan Index Released in April.
Biz2Credit CEO Rohit Arora said the changing trend in corporate borrowing habits is mainly driven by two circumstances.
“Continuing rising costs of capital are compounding the financial crisis for small businesses as the Fed has raised the benchmark lending rate by another 25 basis points to a range of 5% to 5.25%,” Arora said. rice field. “Rate rates are currently at their highest level since 2007, although the central bank has suggested this could be the last rate hike of the year.
“Companies that need working capital to pay their bills are paying a higher cost of capital for that,” he added. “The combination stresses even thriving small businesses. It’s a catch-22 situation right now.”
“The volatility of the banking system goes far beyond the recent failures of Silicon Valley Bank (SVB) and Signature Bank,” Arora said.
He also referred to First Republic Bank, calling it “a much more responsibly run bank than Silicon Valley banks.” Arora noted that First Republic Bank was acquired by the FDIC and its assets sold to JPMorgan Chase.
Arora said the continued withdrawals from corporate accounts could put other mid-sized and regional banks in trouble as well.
“Although we have not yet reached a full run, these developments are having a negative impact on banks’ ability to lend to small businesses,” Arora added. “The FDIC insures deposits up to $250,000, which is relatively small for a commercial account, leaving some deposits uninsured.”
“The huge amount of uninsured deposits in the banking system increases the likelihood of future runs, which is bad not only for small businesses but also for the economy as a whole,” he said.
Biz2Credit Lending Index by the Numbers
- Lending rates fell at large banks, small banks and credit unions.
- The loan approval rate for major banks fell to 13.5% from 15.1% a year ago.
- The loan approval rate for SMEs fell to 18.7% from 20.8% a year earlier.
- The credit union approval rate was 19.8%, down from 20.6% a year earlier.
- Lending rates rose at institutional and alternative financial institutions.
- The approval rating for institutional financial institutions was 26.7%, up from 25.4% the previous year.
- Support for alternative lenders stood at 28.7%, up from 26.8% a year earlier.
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