In perhaps the last snapshot of the secured finance industry before the onset of the COVID-19 pandemic, banks and independent lenders reported that asset-based lending to U.S. businesses increased steadily and credit quality remained strong in the fourth quarter of 2019. However, the unfolding COVID-19 pandemic that began in the first quarter of 2020 is having an unprecedented impact on financial markets worldwide.
According to the latest data and analysis on 4Q 2019 released recently from Secured Finance Network (SFNet), bank lenders reported generally moderate market sentiment, with 4Q 2019 commitments increasing slightly compared to 3Q 2019, continuing the overall trend of quarter-over-quarter growth seen since 2017. Outstandings as a percentage of total commitments decreased in 4Q 2019, and gross write-offs as a percentage of outstanding loans increased in 4Q 2019 to levels similar to those seen in 2016.
Non-bank lenders reported even more positive levels of market sentiment during 4Q 2019 compared to bank lenders. Non-bank lender commitments reached a new high in 4Q 2019, continuing the overall trend of quarter-over-quarter growth observed since 2017. Outstandings decreased in 4Q 2019. New commitments increased to a historical high in 4Q 2019 for non-bank lenders.
Now, with effects of the outbreak of the COVID-19 pandemic in Q1 2020 driving into Q2, uncertainty is the only true certainty.
“These data offer a historical look at Q4 2019 and are useful for benchmarking purposes. We recognize the COVID-19 pandemic has had--and will continue to have--a monumental effect,” said Richard D. Gumbrecht, SFNet’s CEO. “We can expect commitments to increase moving forward as traditional bank borrowers migrate to asset-based lending. Utilization is also expected to increase as borrowers’ working capital needs increase.”
Barry Bobrow, managing director and head of loan sales and syndications for Wells Fargo Capital Finance, expanded upon Gumbrecht’s sentiments.
“Asset-based lending (ABL) has been a vital source of credit during all economic cycles, and especially through periods of market turmoil,” said Bobrow. “In these unprecedented times, the data collected in this survey represent a benchmark to illustrate both the strength of the markets at the close of 2019, and ABL’s ability to be a vital source of capital in the future.”
“Asset-based lending is a flexible financial solution that is able to provide credit throughout the credit cycle and the lifecycle of a company, and I think we will see that as more and more businesses require their services as this situation unfolds,” said Gumbrecht.
SFNet is an international trade association for banks and finance companies involved in secured finance, which includes loans and other financial transactions secured using a borrower’s asset/s as collateral. ABL is one important form of secured finance for retailers, wholesalers, manufacturers and other sectors.