Daily News: June 4, 2012

PayNet Credit Application Indicator Validates Sluggish Demand

A new study by PayNet shows that credit is weak, as is the desire by millions of small businesses to expand. PayNet studied credit applications and booking rates to understand demand and supply of credit. The data definitively shows that demand for credit remains weak. This finding proves that business owners remain cautious about the economic recovery so much so, that they are forgoing expansion and hunkering down by placing more cash in the bank, rather than expanding property, plant and equipment.

Application levels show that demand for credit remains tepid:

  • Credit applications peaked in October 2008, when they rose to all-time highs.

  • During the recession, applications fell 30% by January 2010.

  • Applications for credit remain weak, at about the same level as during the recession.

    Market share by lender type shows competition heating up for the little credit demand that exists.

  • Bank market share of lending grew most during 2007-2009.

  • In 2010 the captive finance companies started to get more aggressive and took a bigger share of the pie as new originations grew 5% overall in 2009-2010 but shrank 2% for banks.

  • Now independent finance companies are stealing market share from banks as their originations grew 39% in 2011 while the overall growth was only 17%.

    Lenders are increasingly competing by besting each other with higher booking rates and easier terms to win the little credit demand there is from small businesses. Terms are loosening, but not the same for all industries.

    “With 2012 business defaults projected to be lower than at any time since 2006, lenders are responding with easier credit terms to reflect this lower risk,” stated William Phelan, president of PayNet. “The conundrum is that with risk and interest rates this low, small business is still cautious about taking on more credit.”