Chart of the Week
This year’s spate of US bank failures (SVB, First Republic and Signature) triggered widespread concern over access to credit. As small businesses necessarily rely more on banks as a source of credit than larger firms, the situation
affected them most. Confirmation came from the NFIB banking survey, which revealed that March saw small business owners experience a sharp deterioration in credit access.
The situation went on to improve significantly until September, when it plunged to one of the lowest levels since the global financial crisis. In addition, small businesses are now experiencing tougher credit standards.
At the end of July, the quarterly bank lending practices survey revealed that credit standards have tightened amid sharp rises in interest rates. Furthermore, according to Bank of America, spreads on US high yield bonds have
widened by 380–440 basis points since mid-September, which could have an indirect impact on the margins applied by banks.
Ultimately, if small business lending goes from bad to worse, the corporate default rate could be pushed higher than would otherwise be the case.
Written on October 13, 2023. This is not an investment advice. Opinions subject to change.
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