Securities-backed financing beckons as banks curb access to credit
Amidst a slowing global economy, banks worldwide are tightening their lending standards, raising concerns about investors’ ability to repay and lenders’ capacity to recover loans. This shift has paved the way and created conditions for the rise of non-traditional financing, among which securities-backed financing has gained significant traction. As businesses and investors seek broader funding options, EquitiesFirst’s capital solution can be an innovative choice, offering investors an effective way to navigate the current credit climate.
Navigating constricted credit standards
The current credit landscape, characterized by tightened lending standards, presents significant challenges for businesses on a global scale. This trend is evident not only in the United States, but also in Europe and Asia, where banks are exercising caution due to shrinking margins and rising bad loans.[1] These constricting credit solutions have made it more expensive and difficult for businesses to secure financing, hindering their growth and recovery efforts.
In the US, the Federal Reserve’s latest survey of senior bank lending revealed that even as demand for loans decreased due to high interest rates, standards for business loans were tightened across all sizes of firms.[2] It is also noteworthy that bankers’ reluctance to lend is attributed less to concerns about the overall economy and more to a lower risk tolerance.[3] This indicates that businesses will continue to face greater challenges in obtaining the necessary financing for their recovery and growth initiatives, even with potential improvement in economic prospects ahead as interest rates stabilize.
Similarly, Europe experienced a similar trend, with the euro area bank lending survey (BLS) reporting a further tightening of credit standards in the third quarter of 2023, despite net decrease in demand from firms for loans or drawing of credit lines.[4] Asia also witnessed a cautious approach from banks as they have been becoming increasingly wary of extending credit with margins dipping and bad loans increasing.[5]
The reluctance of banks to lend and the tightening credit standards bear significant implications for the overall economy. According to J.P. Morgan economist Daniel Silver, the combination of tightening lending standards and decreasing loan demand “look broadly consistent with an economy that should be slowing.”[6]
The rise of alternative funding solutions
As businesses search for more diverse and flexible capital sources to overcome these challenges, the popularity of securities-backed financing has been steadily increasing.[7] In the face of uncertainties related to interest rate fluctuations and ongoing geopolitical risks, such a solution for financing has emerged as a viable means to revitalize and get the languishing loan market moving again.[8] Moreover, financing backed by securities provides advantages over other funding solutions, such as a potential inflation hedge, downside protection and access to lenders less exposed to short-term market movements.
The advantages of securities-backed financing
As financial markets continue to evolve, the need for flexible and responsive capital is likely to persist. In this light, EquitiesFirst presents a progressive approach for businesses and investors to navigate the tightening credit climate and challenges posed by traditional lenders through securities-backed financing. This progressive financing solution allows investors to leverage their equities or crypto holdings as collateral for capital to maintain their growth initiatives and invest in recovery, all while retaining the upside potential of their portfolios.
This unique model involves a temporary transfer of shares during loan transactions, presenting advantageous terms for investors. These terms include higher loan-to-value ratios, reasonable margin call thresholds to cushion against market fluctuations, and competitive interest rates.
Competitive interest rates further distinguish EquitiesFirst’s securities-backed financing, making it an attractive choice for businesses and investors seeking cost-effective capital. The ability to retain the upside potential of portfolios during the loan period offers additional appeal, allowing investors to capitalize on market opportunities.
[1] https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.pr231024~c42cea39db.en.html
[2] https://www.reuters.com/business/finance/fed-report-shows-us-loan-officers-see-tighter-credit-weaker-demand-2023-11-06/
[3] https://www.reuters.com/business/finance/fed-report-shows-us-loan-officers-see-tighter-credit-weaker-demand-2023-11-06/
[4] https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.pr231024~c42cea39db.en.html
[5] https://www.bloomberg.com/news/articles/2023-10-20/asia-bank-margins-to-dip-as-higher-interest-rates-bad-loans-sink-in
[6] https://www.reuters.com/business/finance/fed-report-shows-us-loan-officers-see-tighter-credit-weaker-demand-2023-11-06/
[7] https://internationalbanker.com/finance/the-reasons-for-asset-based-lendings-growing-acceptance-as-a-preferred-funding-source/
[8] https://www.thebanker.com/What-now-for-the-loan-markets-1687332717
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