Banks Raise Roadblocks to Small-Business Loans​​​

Banks have been tightening lending standards, and small businesses are paying the price, the Wall Street Journal reported. Some entrepreneurs are finding it more difficult to get a new loan or have had existing credit lines cut. Others report stricter terms, higher borrowing costs, longer waits and tougher questions from their bankers. “They are definitely being more conservative,” said Brock Hutchinson, chief executive officer of Big Frig, a maker of coolers and drinkware in North Sioux City, S.D. “Things have tightened up.” Nearly half of banks reported stricter loan standards for small businesses in the past three months, according to a survey of senior loan officers released by the Federal Reserve Board in May. More than half said they expect to tighten small-business lending standards further in 2023. Many small businesses are reluctant to borrow, particularly at today’s high rates. The median interest rate for a variable-rate, small-business term loan was 7.44% in the fourth quarter, the last period for which data is available, up 3.42 percentage points from a year earlier, according to the Federal Reserve Bank of Kansas City. Banks have continued to raise rates this year in response to Federal Reserve rate increases, said Ami Kassar, CEO of business-loan adviser MultiFunding. (Subscription required.)​​​​​​ ​​​Read more.

U.S. Corporate Debt Binge Could Be Hard to Sustain​​​

Large U.S. companies have been on a bond-issuance binge, but this rapid pace in supply may be hard to sustain ahead of expected volatility related to extending the U.S. debt ceiling and another possible move higher in interest rates, Reuters reported. Investment-grade-rated companies issued $152 billion in May, making it the busiest May since 2020, when the pandemic crisis prompted record debt-issuance volumes, according to data from Informa Global Markets. Junk-rated companies meanwhile raised $22.1 billion in the busiest May since 2021, when 73 companies raised $49.1 billion. "I believe we have seen an acceleration of issuance into May," said Richard Wolff, head of U.S. bond syndicate at SG CIB, saying this was a result of debt issuance being pulled forward. "So the ensuing months should see a slight moderation of supply," Wolff added. This debt-issuance spree is on the back of strong demand for what were relatively higher-yielding corporate bonds after Treasury yields rose in May from levels touched in late April.​​​​​​ ​​​Read more.

Retail Bankruptcies, Small Business Subchapter Vs, Student Loans, Mass Torts and More to Be Discussed at Next Week's Central States Bankruptcy Workshop​​​

ABI's 2023 Central States Bankruptcy Workshop, being held next week at the Grand Traverse Resort & Spa in beautiful Traverse City, Mich., is celebrating its 30th anniversary of the program, which is geared toward insolvency practitioners in the Upper Midwest region. Bringing a flexible workshop format for both consumer and business practitioners, the workshop’s repeating sessions allow attendees to customize their personal learning experience while earning up to 8.25/9.5 hours of CLE/CPE, including 2.75/3 hours of ethics. A special judicial roundtable session will feature eight bankruptcy judges representing Indiana, Illinois, Minnesota, Michigan, Ohio and Wisconsin. Register today!​​​​​​ 

Analysis: The $64 Billion of Hidden Leverage at Big U.S. Firms​​​

New accounting rules imposed on companies this year have revealed more than $60 billion of previously hidden leverage among the largest U.S. businesses, Bloomberg News reported. The majority of the companies have been reporting these so-called supplier finance obligations for the first time, following rules mandated in September by the Financial Accounting Standards Board. Companies use this type of financing to, among other things, free up cash so they can invest in their operations, buy back stock or issue dividends. Almost all of it has taken place outside the purview of investors and analysts — until now — and the new disclosures show how pervasive the practice has become. About 80 companies in the S&P 500 index reported at least $64.1 billion worth of obligations involving a type of borrowing that lets them postpone payments to suppliers, according to a Bloomberg analysis of filings. The number is only expected to grow as more large companies report their first-quarter financials; only about 400 of the companies in the index have so far published their earnings.​​​​​​ ​​​Read more.

CFPB Finds that Billions of Dollars Stored on Popular Payment Apps May Lack Federal Insurance​​​

The Consumer Financial Protection Bureau (CFPB) released an analysis today finding that funds stored on digital payment apps might not be safe in the event of financial distress, since the funds might not be held in accounts with federal deposit insurance coverage, according to a CFPB press release. The CFPB also issued a consumer advisory for customers holding funds in these apps and how they can make sure their funds remain safe. "Popular digital payment apps are increasingly [being] used as substitutes for a traditional bank or credit union account but lack the same protections to ensure that funds are safe,” said CFPB Director Rohit Chopra. “As tech companies expand into banking and payments, the CFPB is sharpening its focus on those that sidestep the safeguards that local banks and credit unions have long adhered to." Use of nonbank payment apps such as PayPal, Venmo and Cash App have rapidly grown in the past few years. These apps allow people to quickly pay retailers and others, while providing the option to store funds. Unlike traditional bank and credit union accounts which have deposit insurance, funds stored in these nonbank payment companies may be unprotected. In recent months, many Americans were reminded that funds deposited with banks and credit unions enjoy the safety afforded by federal deposit insurance through the FDIC or NCUA. Americans recently witnessed the failure of large systemically important banks such as Silicon Valley Bank, Signature Bank and First Republic Bank, but although these banks experienced a run, insured depositors could have confidence that their money was safe. However, similar protection would not be guaranteed to customers that store money on nonbank payment apps.​​​​​​ ​​​Read more.

American Cities Are Starting to Thrive Again. Just Not Near Office Buildings.​​​

While office towers sit empty and nearby businesses struggle to pay their bills, residential neighborhoods in America’s biggest cities are bustling again, the Wall Street Journal reported. The pandemic and remote work have done little to dent the overall appeal of cities such as New York, Chicago and Los Angeles, foot-traffic and rent data show. Instead, the pandemic has shifted the urban center of gravity, moving away from often-sterile office districts to neighborhoods with apartments, bars and restaurants. At the height of the pandemic, some analysts predicted that big cities would enter a downward spiral as remote workers sought more space and cheaper places to live. That happened to some degree early on, but it didn’t last. While big metropolitan areas lost population during the first year of the pandemic, partly because of a drop in immigration from abroad, the losses have since slowed or reversed, according to a Brookings Institution analysis of census data. Many residential neighborhoods benefit from remote work. As people spend more time at home, they frequent local shops, gyms and restaurants, boosting the economies of places such as Brooklyn, N.Y.’s Ditmas Park and Williamsburg, as well as Washington, D.C.’s Georgetown. Data from Placer.ai, which tracks people’s movements based on cellphone usage, shows a stark divide between office and residential districts. In Downtown Los Angeles, visitor foot traffic is 30.7% below pre-pandemic levels, while Downtown Chicago’s visitor foot traffic is 27.2% lower. By contrast, in the residential areas of South Glendale and Highland Park near Los Angeles and in Chicago’s residential Logan Square neighborhood, visitor foot traffic has been rising and is nearly back to pre-pandemic levels. (Subscription required.)​​​​​​ ​​​Read more.

New Federal Proposal Aims to Stop Racial Bias in Formulas Used to Value Homes​​​

Vice President Kamala Harris said Thursday that federal agencies are taking new steps to stop racial discrimination in appraising home values by proposing a rule intended to ensure that the automated formulas used to price housing are fair, the Associated Press reported. “Everyone should be able to take full advantage of their aspiration and dream of owning a home," Harris told reporters on a telephone call. Announcement of the proposed rule comes a year after the administration laid out a plan to stop appraisers from systemically undervaluing the homes of Black people and other underrepresented groups. Low appraisals make it harder for these homeowners to build wealth and access home equity lines of credit, worsening racial inequality. Appraisers help to determine the value of a home so buyers can receive a mortgage. The extent of the discrimination by appraisers can be massive, in some instances more than halving the value of a property. In Indianapolis, one Black homeowner found that the appraised value of her home had jumped to $259,000 from $125,000 after she declined to disclose her race on her application and removed all family photos and African-American art in the home.​​​​​​ ​​​Read more.

ABI’s New Subchapter V Task Force Needs Data from YOU!​​​

ABI’s Subchapter V Task Force, a nine-member expert panel established during last month’s Annual Spring Meeting to study and evaluate subchapter V of chapter 11 of the Bankruptcy Code, needs your help! The Task Force is seeking input from professionals who have worked or are working with the subchapter to study its effectiveness since it was enacted three years ago. The Task Force also intends to solicit input on subchapter V from the public via hearings and its forthcoming website, culminating in a final report to be delivered in April 2024. Please take a few moments to complete the survey. ​​​

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