At $27 billion, the bond market is not only larger, but arguably more important to most small business owners than the more popular stock market. It is the bond market that allows banks to package and sell mortgages, car loans, credit card debt and business loans to investors, allowing them to replenish their balance sheet and make new loans.
Nationwide, commercial and industrial lending, the critical loans that fund plant expansion, share buybacks and the growth of American small business has jumped significantly over the past 2 years.
The problem, and in my opinion the beginning of the “trickle”, is that many banks have been forced to take on loans and support credit lines they never expected or intended to make. Banks made enormous commitments to companies, hedge funds and private equity firms as they fund share buybacks, acquisitions and take over public companies at a record pace in 2007.
Problem is, banks would have normally sold these commitments to investors through the bond market. However, the buyers have disappeared and the big banks are now holding these loans, taking up valuable room on their balance sheets. Lehman Brothers estimates there is currently $150 billion in buyout loans that still need to be sold by banks and there is the risk of billions more that will go unwanted in the coming months.
Real estate lending has taken the biggest and most visible hit thus far, but we have significant concerns that tightening will extend to the business market and could trickle down to effect small business owners within months.
We continue to work closely with our funding sources, have capacity for $3 million of business funding for the remainder of 2007 and DO NOT anticipate any impact on our capacity or underwriting requirements through Q1 of 2008
{ 2 comments… read them below or add one }
I enjoyed reading your article. I do have one question though. A lot of emphasis was placed on the bonds market in your article. It mentions that the bond market allows banks to package and sell mortgages, etc.
So, I would like to know a little more about the bond market?
I would like a clear picture of this. Thanks.
I, too, enjoyed reading this article.
I have grown very curious about the bonds market. It was an education read for me.
Any more information you provide will be greatly appreciated.