I have a duty to present information, facts, data and opinions in an understandable way backed up with evidence and vetted sources. That's not an easy task considering how much disinformation there is and that's leading owners to information deficit and ignorance of critical issues that profoundly affect them like, for example, the cost of capital. Loans are not just more expensive in terms of higher interest but, they're also harder to get approved.
When I approve requests after having underwritten a file, my initial approval must first be authorized by my lending committee which is also where terms are determined such as interest and length of term. lately, far fewer approvals are getting the final green light as more and more guideline restrictions are added to the approval filters dropping the percentage of requests that make it across the line.
"The rejection rate for loan applicants jumped to 21.8% in the 12 months through June, the highest level in five years, according to the latest edition of the Fed survey, which is published every four months. Overall credit applications declined to the lowest level since October 2020.
In the previous survey, published in February before the collapse of Silicon Valley Bank and other US lenders, the rejection rate was 17.3%. The increase since then has been broad-based across age groups, and highest among those with credit scores below 680."
That doesn't mean business owners can't get approved for loans at all. On the contrary, we're quite busy and approvals are actually higher in absolute numbers however the ratio of requests to approvals has fallen and continues to show weakness.
Fico score have never been more important than they have been lately:
"Over the past few years, tens of millions of consumers witnessed a remarkable increase in their credit scores, primarily due to helicopter money dished out by the federal government, rock-bottom interest rates, and a pause on student-loan payments. However, the party has come to an abrupt end as credit scores plunge.
Bloomberg reports Synchrony Financial is closing inactive accounts and capping card limits for a number of clients as macroeconomic headwinds mount"
It's not easy for me to resist mocking Jim Cramer who is hands-down the most mock-able TV personality because of how spectacularly wrong he has been consistently for two decades. There are funds with billions under management who do nothing other than short (bet against) his recommendations:
I find it interesting that, historically speaking, interest rates aren't much higher than their average. It's simply that we have become accustomed to an interest rate environment that was (and continues to be) fully controlled and manipulates by the Federal Reserve exclusively. That is, the Fed acts; the economy re-acts.
"The average weekly prime rate since 1955 is 6.81%, and the median is 6%. Today it’s at 8.25%."
All of the data and news I'm seeing combined with my work where I speak with business owners daily about their capital needs has convinced me that we're already in a very severe economic downturn which has the distinct potential, depending on what the Federal Reserve does and doesn't do to become a full blown crash. The head winds are legion:
Banks have seen their massive holding of US Treasuries (the "safest investment on earth") drop in value like they were stocks leaving all banks underwater when they sell Treasuries to meet depositors withdrawing their accounts and buying short term Treasuries at 5+%.
"Did you know that 2022 was the WORST year for US Treasuries in American history? The benchmark 10-year Treasury fell nearly 18%, and the 30-year Treasury collapsed over 39%. Many other bonds did even worse. Even if you go back 250 years, you can’t find a worse year for Treasuries, the foundation of the colossal global bond market. Today, the global bond market has grown to be worth more than an estimated $133 trillion as the masses parked their savings there because conventional wisdom said it was the “safe” thing to do."
There's something else: There has been a very well documented and data-driven massive increase in the number of new disability claims from American workers age 16 and over. The increase is incredibly large and it started in early 2021 and is still accelerating. This kind of change from normal patterns doesn't just happen unless something occured; no one seems to want to talk about or even know what it is and what caused this sudden increase.
Many of the over-lapping issues we are all now facing require things we don't have to repair them like time for example. These problems are the result of decades of doing things the wrong way and that requires lot's of time doing things differently before they can get better. I recommend using debt selectively when you can gain competitive advantages by doing so. Many owners that can't access capital may lose market share and that will present an opportunity for others. That is, owners who can get approval for working capital loans now have a greater competitive advantage than before as over-all demand drops. I can approve large amounts up to $5 Million and smaller requests are still being funded daily.
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