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Greenwich Associates: U.S. Companies Turning to Non-Bank Lenders for Credit

Date: Jun 19, 2014 @ 07:52 AM

A notable share of U.S. small businesses and middle-market companies are obtaining credit from non-bank providers. The most troubling news for banks—and possibly for regulators: nine out of ten companies that borrowed from these alternative lenders say they’ll look to tap non-bank providers for credit again in the future. Greenwich Associates surveyed approximately 125 companies for its latest Greenwich Market Pulse, U.S. Companies Turning to Non-Bank Lenders For Credit. Of the companies that obtained credit over the past 18 months, one-quarter reported securing funds from non-bank providers. These borrowers seem very satisfied with their experiences. In addition to the fact that 90% of them said they would use non-bank providers for credit again, 60% said the process of obtaining credit is easier through non-banks than it is through traditional banks. Roughly a third of companies that obtained credit from non-banks said they did so at least in part because their traditional banks refused to lend, a finding that suggests some of the companies being supplied with credit by non-banks are firms that were unable to qualify for loans through traditional banking channels. But the bulk of the companies using non-bank lenders were attracted to these providers by terms, conditions, rates and pricing that simply were more attractive than those offered by traditional banks. Once they engaged with these providers, the companies were impressed with the experience. “Companies are saying that non-banks have a simpler application process, require less documentation, and deliver much faster credit decisions,” says Greenwich Associates consultant Duncan Banfield. The implementation of stricter capital reserve requirements and regulations like “know your customer” rules have made the process of applying for and making commercial loans more complicated and cumbersome for both banks and companies alike. To date, companies say that increased documentation requirements have not had much effect on their relationships with their banks. However, Greenwich Associates projects that the burdens associated with these new requirements will eventually have a negative impact on relationships between small/mid-sized companies and their banks. “Although non-bank finance companies have long been staples of corporate finance, the one thing regulators would not want to see is the demands of new documentation requirements contributing to a migration of loan activity from the highly regulated banking industry to an emerging group of much more lightly regulated, non-bank providers,” says Duncan Banfield. Greenwich Associates is the leading provider of global market intelligence and advisory services to the financial services industry. We specialize in providing fact based insights and practical recommendations to improve business results.

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