At a fascinating macro talk this morning by a Goldman Sachs strategist, he mentioned a “lopsided barbell” of credit.
To the biggest firms with the best ratings — think IBM or MSFT — money is basically free, with coupon yields at sub-2%.
But to middle-market (say, $100M – $500M sales) and lower-end of middle market (let’s say $20M – $100M) companies, bank credit is simply not available at any price.
Interestingly, this week at a discussion with some regional commercial bankers, my partner Andy Sack heard gripes from the loan officers about extraordinarily tight credit conditions for single-digit-millions size facilities. (Of course, loan officers always gripe when “the credit guys” say no, but it’s worse now than usual, and importantly, not much better than 2008).
So: until or unless the big banks stop getting money for “free,” they’ll be quite content to sit on it and/or plow it for nearly-free into premium credits in large deals. Don’t expect small business credit to loosen up until, paradoxically, rates have risen somewhat.
(Don’t expect us to have that problem over at RevenueLoan. We’re funded by private equity investors specifically to prove out the royalty/revenue-based financing model, so A. our money costs us “private equity rates” and B. we’re on a mission to fund small businesses!)