Major banks are currently entering their earnings season, and so far their performance has been generally positive. Goldman Sachs on Tuesday reported a 51% increase in profit in the last quarter. And even though Citigroup lost $1.8 billion in the quarter, the nation's four largest banks — JPMorgan Chase, Bank of America, Wells Fargo and Citibank — posted year-on-year profits for the entire year. There was a sharp increase of 11% compared to the previous year.
However, if you are a small business, there is a good chance that the loan you took out to expand your company did not come from a large bank. Or any bank really.
Let's say you live your dream and run a small chain of boba tea cafes that also serves ribs. OK, maybe Boba Q is my dream.
But now suppose you want to open a few more Baba-Q stores or vertically integrate a giant plastic straw supplier. You can go to your local bank and say, “Please give me a loan.” Or there are other options.
“Instead, we need hedge funds and private equity firms to make the same loans themselves,” said Andrew Park, senior policy analyst at Americans for Financial Reform.
Now, banks and non-bank investment companies may offer similar interest rates, but non-banks are likely to be a little more flexible when it comes to other terms, such as how much debt they can take on. there is.
“Many of the conditions traditionally required by banks will be waived by non-bank lenders,” Park said.
Private credit (the name for non-bank lending) has become very attractive in recent years to both mid-sized companies and investors.
“Current U.S. private credit is estimated at approximately $1.4 trillion,” said Ruth Yang, managing director at S&P Global Ratings.
For context, this is basically the size of the entire US junk bond market.
In the case of private credit, it means filling a hole in the economy. Since 2008, new regulations have made it more difficult for banks to lend to businesses.
The case against private credit is that banks are highly regulated for a reason. There are not so many private equity and hedge funds, but
“They don't even have to make basic disclosures about what their operations are, what their finances are, and whether their finances have been audited by truly independent auditors,” said Alex Thornton, the center's senior director of financial regulation. said. For American Progress.
But a lack of transparency does not dampen private credit. Morgan Stanley predicts the market could top $2 trillion in just three years.
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