There are a variety of factors at play right now that have a negative effect on how much capital is available for lending. Credit "creation" is a term lenders use to describe new loans initiated and those numbers are slowing down a lot causing a general credit squeeze. Banks and other, non-bank lenders are all circling their wagons adjusting their lending standards higher to compensate for higher risk.
"The New York Fed reported that the overall rejection rate for credit applicants rose to its highest level since June 2018, standing at 21.8 percent, a jump from 17.3 percent in February.
Researchers noted that the rise in the application rejection rate “was broad-based across age groups and highest among those with credit scores below 680.”
The result of this dynamic is that fewer businesses have access to working capital now and the knock-on effects of that spending cut will reverberate through the economy like a doom-loop of less credit, less spending, less growth and so on.
"Credit Harder to Acquire
The U.S. lending sector has taken a hit following the collapse of three regional banks this spring which has caused the flow of credit to dry up for many businesses. Loan loss reserves have risen by more than $25 billion since June last year. Meanwhile, Federal Reserve policymakers aggressively raised borrowing rates in March 2022 to head off high levels of inflation by softening demand. This policy has made credit harder to get, and the Fed is widely expected to raise rates again next week at its next policy rate meeting. The higher interest rates have driven up borrowing costs, causing banks to brace for more defaults, while overall loan loss allowances, outside the pandemic, peaked at their highest level in almost 12 years."
Corporations struggling to maintain their profit margins are using tricks with their packaging to reduce the weight of the products sold allowing them to make more selling less (weight) without overtly "raising prices". This phenomenon has been given the name: "Shinkflation"
“Downsizing is really a sneaky price increase,” former Massachusetts assistant attorney general Greg Dworsky told NPR during an interview. “Consumers tend to be price-conscious. But they’re not net-weight conscious. They can tell instantly if they’re used to paying $2.99 for a carton of orange juice and that goes up to $3.19. But if the orange juice container goes from 64 ounces to 59 ounces, they’re probably not going to notice.”
The author makes another important point:
"Misplaced Blame
Consumers often don’t notice shrinkflation, but when they do, they get angry, and they usually direct their anger at the “greedy” corporations who are charging them the same amount of money for less product. But there is another culprit who generally slinks around unnoticed.
The Federal Reserve.
Price inflation is a symptom of monetary inflation. As the central bank creates money out of thin air and injects it into the economy, prices generally rise. Economist Murray Rothbard noted that since governments have deemed “paper tickets” and computer digits money, “then the government, as dominant money-supplier, becomes free to create money without cost and at will. As a result, this ‘inflation’ of the money supply destroys the value of the dollar or pound, drives up prices, cripples economic calculation, and hobbles and seriously damages the workings of the market economy.”
If you get your news from ANY television station exclusively then you might be slightly under-informed about the real situation:
"They’ll blame supply chain problems, Vladimir Putin, and greedy corporations… anything but the Fed’s currency debasement as the source of inflation."
Heading into the end of this year and, especially in 2024 there are some pretty big head winds facing the availability of credit, I'm already dealing with many issues and I expect them to increase moving forward. Even a quick glance at what's on deck is quite daunting:
"US consumers, particularly those with lower incomes, are running into financial trouble as pandemic savings disappear, a headwind for lenders ranging from banks to asset-backed securities investors.
The credit outlook is expected to deteriorate later this year when almost 27 million borrowers have to resume making payments on student loans. Delinquencies for other forms of debt will likely rise, as people divert money away from servicing car loans and credit cards, according to Morgan Stanley economist Sarah Wolfe."
Here's the 800-elephant in the room: all refinancing now has to be done at way higher interest rates increasing the cost businesses have to pay for debt service to unsustainable levels while demand disintegrates.
Working capital is still available from me at rates that haven't changes much at all in over 5 years. The diffence now is that the requirements for approval have tightened up.
Call me to discuss your capital needs and the timing you require.
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