Now is a good time to refinance and extend your out of home company’s credit lines. Bank loan chargeoffs have been extremely low for the past 4 years.
In response, banks are loosening credit terms and reducing loan spreads. Lower cost loans and easy credit terms will disappear when the economy sours. Here are two tables from the February 2018 Federal Reserve national survey of senior bank loan officers. The first chart shows the net percentage of banks which are increasing loan rates. Most banks have been decreasing credit spreads (i.e. lowering the price) for the past 8 years due to competition from non-bank lenders.
The second chart shows that banks have eased lending standards since 2010 in part due to competition. Here’s the narrative in the Federal Reserve report: “Among the domestic respondents that reportedly eased their credit policies on C&I loans over the past three months, more aggressive competition from other banks or nonbank lenders was by far the most emphasized reason for easing. Nearly every bank that reported having eased standards attributed this change, in part, to more aggressive competition, with a majority of respondents indicating that the reason was “very important.”
Now’s a good time to ask your bank to ask for better terms. Ask for a reduction in price. If you have a one year revolver, ask for a two year extension. Ask for looser financial covenants. Insider thinks that credit spreads and lending terms are as good as they’re going to get. The charts tell you that credit costs and credit terms will get much worse when the economy enters a recession.