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PayNet Credit Application Indicator Validates Sluggish Demand

June 04, 2012, 08:00 AM
Filed Under: Economy

A new study by PayNet, Inc. a firm that provides risk management tools and market insight to the commercial credit industry shows that credit is weak, as is the desire by millions of small businesses to expand.
PayNet studied credit applications and booking rates to understand demand and supply of credit. The data definitively shows that demand for credit remains weak. This finding proves that business owners remain cautious about the economic recovery so much so, that they are forgoing expansion and hunkering down by placing more cash in the bank, rather than expanding property, plant and equipment.
Application levels show that demand for credit remains tepid:

  • Credit applications peaked in October 2008, when they rose to all-time highs.
  • During the recession, applications fell 30% by January 2010.
  • Applications for credit remain weak, at about the same level as during the recession.

Market share by lender type shows competition heating up for the little credit demand that exists.

  • Bank market share of lending grew most during 2007-2009.
  • In 2010 the captive finance companies started to get more aggressive and took a bigger share of the pie as new originations grew 5% overall in 2009-2010 but shrank 2% for banks.
  • Now independent finance companies are stealing market share from banks as their originations grew 39% in 2011 while the overall growth was only 17%

Lenders are increasingly competing by besting each other with higher booking rates and easier terms to win the little credit demand there is from small businesses. Terms are loosening, but not the same for all industries.

“With 2012 business defaults projected to be lower than at any time since 2006, lenders are responding with easier credit terms to reflect this lower risk,” states William Phelan, president of PayNet, Inc. “The conundrum is that with risk and interest rates this low, small business is still cautious about taking on more credit.”

PayNet’s will provide this study at at the Equipment Leasing Finance Association (ELFA) Credit & Collections Conference in Baltimore, June 3-5, 2012.  While in Baltimore, PayNet will also be addressing industry executives presenting at the ELFA Industry Conference.

PayNet Inc. is the premier provider of risk management tools and market insight to the commercial credit industry, collecting real-time loan and lease information from leading U.S. lenders and turning it into actionable intelligence. The company's proprietary database -- updated weekly -- is the richest and largest collection of commercial loans and leases, encompassing nearly 19 million current and historic contracts worth over $1 trillion. Using state-of-the-art analytics, PayNet converts raw data into real-time market intelligence and predictive information that subscribing lenders use to manage risk, lower operating costs, originate more, and improve their business strategy.  For more information

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