Daily News: June 23, 2014

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

A notable share of U.S. small businesses and middle-market companies are obtaining credit from non-bank providers, according to a recent report. The most troubling news for banks, and possibly for regulators: Nine out of 10 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.

“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 consultant.

Stamford, CT-based Greenwich Associates provides insights and recommendations on operations performance, service quality, sales effectiveness, share of wallet, market share, brand, and behavioral trends.