Financial Services
Explore how the rapid rise in new business formation presents a unique opportunity for firms to expand digital relationships, automate small business credit processes, and stay ahead in a transforming economy.
Since January 2021, a seasonally adjusted average of 444K new businesses opened each month, 52% higher than the pre-pandemic 2018-2019 monthly average. In light of the influx of new businesses, and in a higher-interest rate environment, the goal of this week’s analysis was to evaluate if commercial credit usage and payments by product shifted pre- and post-pandemic. Businesses with two different trade types were evaluated as of 2018 (prepandemic) and 2022 (post-pandemic). The two-trade-type combinations observed were Card + OECL (open ended credit line), Card +Term Loan, Card Lease, and Card + LOC (line of credit). Despite more younger businesses entering the market and lenders tightening credit policies over the past two years, businesses with two-trade types had higher lines/loans post-pandemic. Delinquencies also increased post-pandemic for all the two-trade type combinations except businesses with a Card & OECL. Commercial Cards are the most prevalent type of credit for businesses. As businesses grow, they seek additional credit for business needs such as expansion, new facilities, and acquisitions. When businesses seek additional credit, it is most often in the form of commercial loans, leases and credit lines which compared to cards, generally provide higher levels of funding, longer terms and higher monthly fixed payments. For businesses that had two types of accounts, including a commercial card with another commercial credit product, the commercial card stayed current longer and more often the non-card product went delinquent first. Businesses rely on commercial cards for day-to-day operating expenses and lower dollar financing needs. Furthermore, commercial card balances are significantly lower than any of the other commercial trade types allowing for a lower monthly minimum payment to keep the card in good standing. What I am watching: Federal Reserve Chairman Powell stated in last week’s Congressional hearings that the Fed will act slowly and cautiously in terms of cutting interest rates. With inflation declining but still persistent and the labor market still robust, rate cuts may not occur until the second half of the year. Download Report Download the latest version of the Commercial Pulse Report here. Better yet, subscribe so you'll get it in your inbox every time it releases, or once a month as you choose.
The aggressive interest rate hikes instituted by the Federal Reserve over the past year and a half may have achieved the desired goal. Easing inflation (3.2% in October) and strong GDP growth (4.9% in Q3) are some of the first indications that the economy may experience the “soft landing” hoped for instead of a recession. The consistently strong labor market produced low unemployment and increasing wages, enabling personal spending to increase. However, while spending continues to grow, the growth rate is on a downward trend. The high rate of spending has been driven by consumers digging into savings and borrowing more. As savings dwindle and the cost to borrow increases, it is likely that consumers will retreat and the pull-back will likely hit discretionary categories first. What I am watching: Heading into the holiday season, consumer spending is still strong but how long will it last? The National Retail Federation is projecting that November and December retail sales will grow 3-4% which is in line with the 3.6% average increase from 2010-2019 but lower than the past three years. People are already dipping into savings and borrowing more to continue their consumption but that well will run dry at some point. In addition, 36% of consumers cite December is a month for seasonal financial distress, according to PYMNTS. While consumers may continue spending through the holiday season, the tide may turn in early 2024 when bills hit with higher interest rates. Download Full Report Download the latest version of the Commercial Pulse Report here. Better yet, subscribe so you'll get it in your inbox every time it releases, or once a month as you choose.
The Commercial Pulse report provides a bi-weekly directional update on small business credit. It delivers a quick read on macroeconomic conditions, high-level credit trends, score and attribute impacts, and other market-related activities.
Recent news of the SVB collapse highlights the vulnerability of small banks and their crucial role in serving local communities. Small and medium-sized financial institutions should prepare for additional interest rate hikes.
Bankruptcies and collections are on the rise since mid 2022. Pandemic-related relief and forgiveness suppressed collections for most of 2021 and the first half of 2022.
In this post we discuss reject inferencing and how it can help credit departments grow commercial accounts without taking on more risk.
Heading into the holiday season, we'll see if consumers continue to spend at high levels, or if higher prices, higher interest rates and lower savings create a drag on sales.
In our Business Chat, Greg Carmean shares how the latest SBFE attributes help lenders better assess small business risk and tap into growth opportunities.
