According to data from the Secured Finance Network (SFNet), bank and non-bank lenders reported asset-based lending to U.S. businesses increased steadily and credit quality remained strong in Q4/19, but the unfolding COVID-19 pandemic is having an unprecedented impact on financial markets worldwide.
“These data offer a historical look at Q4 2019 and are useful for benchmarking purposes. We recognize the COVID-19 pandemic has had — and will continue to have — a monumental effect,” Richard D. Gumbrecht, CEO of SFNet, said. “We can expect commitments to increase moving forward as traditional bank borrowers migrate to asset-based lending. Utilization is also expected to increase as borrowers’ working capital needs increase.”
Bank lenders reported generally moderate market sentiment in Q4/19, with commitments increasing slightly compared with Q3/19, continuing the overall trend of quarter-over-quarter growth seen since 2017. Outstandings as a percentage of total commitments decreased in Q4/19, and gross write-offs as a percentage of outstanding loans increased in Q4/19 to levels similar to those seen in 2016.
Non-bank lenders reported even more positive levels of market sentiment during Q4/19 compared with bank lenders, according to SFNet. Non-bank lender commitments reached a new high in the quarter, continuing the overall trend of quarter-over-quarter growth observed since 2017. Outstandings decreased in Q4/19. New commitments increased to a historical high in Q4/19 for non-bank lenders.
Now, with the effects of the outbreak of the COVID-19 pandemic in Q1/20 driving into Q2/20, uncertainty is the only true certainty.
“Asset-based lending (ABL) has been a vital source of credit during all economic cycles, and especially through periods of market turmoil,” Barry Bobrow, managing director and head of loan sales and syndications for Wells Fargo Capital Finance, said. “In these unprecedented times, the data collected in this survey represent a benchmark to illustrate both the strength of the markets at the close of 2019 and ABL’s ability to be a vital source of capital in the future.”
“Asset-based lending is a flexible financial solution that is able to provide credit throughout the credit cycle and the lifecycle of a company, and I think we will see that as more and more businesses require their services as this situation unfolds,” Gumbrecht said.
SFNet is an international trade association for banks and finance companies involved in secured finance, which includes loans and other financial transactions secured using a borrower’s asset/s as collateral.