As Credit Tightens, Borrowers and Investors Retreat AlikeJuly 5, 2016 | By: Srividya Kalyanaraman
America’s bond market is drying up.
The value of bonds packaged with personal, corporate and real-estate loans fell by $98 billion, a 37 percent decline from the first half of 2015 making it tough for businesses to refinance their debt.
Lenders have for long relied on securitization for capital but as the credit market tightens, companies will be forced to diversify and soon.
There are currently more than $10 trillion in outstanding securities backed by personal, business and other loans, according to the Securities Industry and Financial Markets Association, the Wall Street Journal said.
And it’s not just investors who are retreating. A recent study found that small businesses are hesitant to borrow and rely on personal resources to meet their business’ capital needs. Demand from businesses with revenues of less than $5 million shrunk 15 percent from Q1 2016 to Q2 2016, from 38 percent to 32 percent.
The survey also noted that a third of business owners that responded transferred personal assets like savings and personal credit cards to their business accounts in the last quarter.
“Business borrowing habits suggest owners may not see a need for an immediate infusion of capital,” said Dr. Craig R. Everett, assistant professor of finance and director of the Pepperdine Private Capital Markets Project. “However, these findings suggest business owners are still feeling the lasting impact of the recent recession and remain skittish about the future, as reflected in an abundance of caution when it comes to the economic environment.”
Business owners are being tightfisted with borrowing, instead using earnings and profits for capital expenditure.
“There are far fewer small businesses taking a loan, as they don’t see opportunity for expansion,” said Holly Wade, director of research and policy analysis at NFIB, a small business trade association. “Some are uncertain about the future so they don’t want to take out a loan and in some instances, owners have a more difficult time finding desired loans.”Last modified: July 5, 2016
Srividya's work has appeared in publications like Money magazine, Advertising Age, FirstPost and The Economic Times. She has also dabbled in business intelligence solutions, and holds a Masters degree in Business and Economic Reporting from NYU.