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Lending Standards Toughen for Commercial Loans

According to the January 2016 Senior Loan Officer Opinion Survey on Bank Lending Practices, some banks have tightened both standards and terms on commercial and industrial loans and bankers across the country expect them to remain tight. The survey of more than 70 banks across the United States revealed while standards are easing for residential mortgages, auto and other personal loans, standards on business loans toughened in the fourth quarter of 2015.

In early 2016, the U.S. economy has missed expected growth numbers, and a rocky start to the year across the globe has left stock markets uneasy. As a result, many of the loan officers polled cited an uncertain economic outlook, industry-specific issues – including the weakening of energy-related industries – and concerns about legislative and regulatory changes as the top reasons for restricted lending. Risk tolerance was another area of concern and could have a direct impact on credit availability. That could prove especially tough on construction subcontractors, which are considered riskier borrowers due to factors including higher failure rates and lower profit margins relative to other industries, as well as a highly competitive business landscape.  

In addition, borrowers potentially face rising interest rates. Addressing the Senate last week, Federal Reserve Chairwoman Janet Yellen didn’t rule out additional increases to the benchmark lending rate over the next 12 months even in the face of an erratic start to the year.

Changes to the lending environment could make access to working capital scarcer and more expensive for small business owners – when borrowing is already tough. In the weeks and months ahead, working capital management will continue to be a key concern for construction businesses, which also face cash flow and working capital challenges arising from face long waits for payment and unknown payment timing in construction.

One solution that has emerged to address these challenges is supply chain finance (SCF), which helps both suppliers and buyers optimize working capital management to mutual benefit. In a new white paper, we explore how SCF works, its proven cash flow benefits in numerous industries, and why SCF programs that facilitate accelerated subcontractor payments are a natural solution to the challenges in the construction industry.

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