Asset-based lending grew modestly in the second quarter for banks and more significantly for other lenders, according to the Secured Finance Network’s Asset-Based Lending Index and SFNet Confidence Index. The association surveyed 36 bank and non-bank asset-based lenders on key indicators for the index.
“Asset-based lending growth reflects broader economic forces at play, and the second quarter was no exception,” Richard D. Gumbrecht, CEO of SFNet, said. “We can see, for example, that credit line utilization is increasing but still far short of pre-pandemic rates, even though the economy is growing. That’s probably because many business borrowers are relatively flush with cash right now.”
Survey Highlights
For banks, asset-based loan commitments (total committed credit lines) in Q2/21 rose modestly by 2% compared with the previous quarter. Outstandings (total asset-based loans outstanding) increased by 5.3%, though the survey analysis noted this was sharply below pre-pandemic levels. Non-bank ABLs experienced greater second quarter growth, with a 6.8% increase in asset-based loan commitments and a 10% increase in asset-based loans outstanding compared with Q1/21.
In terms of credit line utilization rates, banks averaged 33.3%, up slightly from 32% in Q1/21 but nowhere near 2019 rates, which were typically in the mid-40s. The credit line utilization rate for non-bank lenders was 45.4% in the second quarter compared with 32% in Q1/21 and the mid-50s in 2019.
Both bank and non-bank asset-based lenders reported clean portfolios, with write-offs and other negative indicators remaining low. The survey analysis attributed this to a combination of low interest rates, strong overall economic growth and business cash reserves but added that unusually low interest rates were also a “looming challenge” for lenders.
“Super easy credit conditions are already starting to boost M&A activity, which may provide a new focus on bank lenders. This, in turn, may open new opportunities for non-bank lenders. However, continued rapid growth in the economy and rising inflation may cause the Fed to accelerate the pace of its tapering of bond purchases and boost the cost of funds faster than generally expected,” the analysis said.
