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Jan 26
2011

Goods news about business borrowing

Posted by annearf in loanscommunity banksCashborrowing

annearf

More promising developments in the area of borrowing.

An important just-released indicator of business health and activity reveals some upward trends--specifically, that companies increased their borrowing to invest in operations and more firms are keeping up with payments on loans they've taken out previously.

According to the Equipment Leasing and Finance Association's Monthly Leasing and Finance Index , companies originated $9 billion in loans, leases and lines of credit in December used for investing in capital equipment. That's up 27 percent from $7.1 billion borrowed the year before and a 100 percent increase from November's $4.5 billion. New business volume for 2010 was $59.6 billion, up 9.2 percent from 2009.

Credit quality also improved. The data shows that 2.7 percent of borrowers were behind 30 days or more in December vs. 3.2 percent in November and 4.3 percent the year before.

What's more, lending approvals were up. Specifically 75.3 percent of credit applications were approved in December, the highest level since the recession started.

At the same time, the Treasury Department is about to start making available money from the  $30 billion Small Business Lending Fund proposed last year. The fund provides money to community banks, which will receive lower interest rates--from 5 percent to as low as 1 percent--as long as they increase lending to small business. If they don't, interest rates on money from the fund will rise to 7 percent after two-and-a-half years. After four-and-a-half years, the rate increases to 9 percent for all participating banks. Qualifying loans can be up to $10 million and made to companies with $50 million or less in revenues.

Also there's an attraction for banks that have received money from the Troubled Asset Relief Program (TARP). They can lower the dividend they have to pay the government.

Of course none of this means anything definite about recovery. But indications of healthier business activity, combined with an effort to lend more to small businesses that has real potential: It's at least somewhat encouraging news.

 

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