ss_blog_claim=bd50edc517cf0b7549fe6b5f63b6b5f8 The SLS Business Finance Blog: August 2008

Friday, August 29, 2008

Structured Finance

What is Structured Finance?

The most common lease structures have a residual and final payment of Fair Market Value (FMV), 10% of Value new or $1. Anything that falls outside those structures is considered structured finance. This occurs most often when there is a 'story' about the company or the equipment it wants.

For example, if a company has excellent cash flow but poor credit of the owners then a structured deal might look something like this:

Instead of zero, 1 or 2 payments down, 15% down with a 36 month lease with a residual value of 15% of value new.

Structured finance allows for more deals to be done by lessors and for more customization of programs for the lessee. It's a real win/win/win

Thursday, August 14, 2008

Fed Survey Shows Continued Tightening of Bank Lending Standards

Reprinted from The Monitor

More banks are tightening lending standards on home mortgages and other consumer and business loans as a deepening credit crisis exerts a heavier toll on the economy, according to new survey data from the Federal Reserve. As reported in the Fed's July 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices, which is released every three months, about 60% of domestic banks - a slightly larger fraction than in the April survey - reported having tightened lending standards on commercial and industrial (C&I) loans to large and middle-market firms over the past three months. About 65% of those institutions - up notably from roughly 50% in the April survey - also indicated that they had tightened their lending standards on C&I loans to small firms over the same period.

Significant majorities of domestic respondents indicated that they had tightened selected price terms on C&I loans to firms of all sizes: About 80% of banks, up from roughly 70% in the April survey, noted that they had increased spreads of loan rates over their cost of funds on C&I loans to large and middle-market firms, and about 70% of respondents, a somewhat higher fraction than in the April survey, reported having widened spreads on loans to small firms. In addition, considerable fractions of domestic respondents reported having boosted non-price-related lending terms on C&I loans to firms of all sizes over the survey period, and the fraction of banks that tightened such terms on loans to small firms increased significantly relative to the April survey.

Meanwhile, the July survey indicates a drop in demand for business loans over the past three months. On net, about 15% of small domestic and 25% of foreign banks reported weaker demand for C&I loans from firms of all sizes over the survey period. About 15% of large domestic banks, on net, experienced weaker demand from small firms, although about 5% of these banks, on balance, reported that demand for C&I loans from large and middle-market firms had increased over the past three months. The Fed survey found that only seven of the 50 banks said they were still participating in subprime mortgages, loans made to borrowers with weak credit histories. Of those seven, six said they had tightened lending standards on subprime loans with only one saying it had left standards basically unchanged for subprime loans.

For all the Fed Data, please click here.

Editor's Note: Bank lending rates are going higher, while both the supply of $$ to lend and the demand for business loans is softening, with smaller businesses being affected the most.