Loans: Will The Easy Money Last? By George A. Parker At Isnare.com Ezine Articles

During 2005, loans to U.S. businesses topped $1.5 trillion according to Reuters Loan Pricing Corp. Participating in this credit frenzy were banks, insurance companies, business finance companies, hedge funds and a host of other credit providers. With many potential borrowers awashed in cash, lenders continue to fall all over themselves to make business loans. Can this easy money period last?

Apparently, no clear end to easy money is in sight. In fact, the fate of easy money rests with GDP growth over the next year or two. If GDP remains strong, company profits should follow suit. In the absence of unexpected adverse factors, corporate liquidity should remain strong. Most economists predict that GDP will grow solidly in 2006, albeit not at the lofty 3.5% level of 2005. Even the prospect of additional Fed rate hikes is not expected to dampen corporate liquidity or to curb the competition among lenders to put on loans.

Despite an indication that easy money will be here for a while, dark clouds could enter the horizon and bring an end to the easy credit party. A dramatic event like a terrorist attack or a large corporate loan default could spook lenders into running for cover. Another threatening development would be a slowdown in consumer spending. Spendthrift consumers have been driving economic growth for years, but they are showing some signs of buying fatigue. Lastly, regulators could turn the party out by increasing the scrutiny of bank loans. This development is not very likely, given the reasonable level of loan defaults and regulators’ present focus on the aggressive mortgage market.

Given all the possible scenarios, lenders are not expecting any loan market slowdown over the next year. In fact, many CFOs believe that the loan market does not get any better than this. If you find yourself in the market for a new business loan or if you are looking to refinance an existing one, now is as good a time as any.

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