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COVID-19

Businesses are taking out fewer bank loans

Justin Ho Aug 14, 2020
Heard on: Marketplace
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A view of the New York Stock Exchange in 2018. Spencer Platt/Getty Images
COVID-19

Businesses are taking out fewer bank loans

Justin Ho Aug 14, 2020
A view of the New York Stock Exchange in 2018. Spencer Platt/Getty Images
HTML EMBED:
COPY

Businesses have been able to pay off some debt during the pandemic — that’s one conclusion of a new report from S&P Global Market Intelligence. And that might be telling us something about where this economy’s headed.

Back in March, when the pandemic started freaking everyone out, companies went to their banks and drew on their existing lines of credit.

Karen Petrou, managing partner at Federal Financial Analytics, said companies were hoarding cash.

“Companies drew every nickel of cash they could get out of their banks just in case,” she said.

That was during the first quarter. In the second, some companies started receiving government aid — Paycheck Protection Program loans.

Nate Tobik, CEO at CompleteBankData, said by then, non-PPP loans started to seem unnecessary for a lot of companies.

“They didn’t need the credit lines they drew, so they paid it down,” he said.

That’s not necessarily a good sign for economic growth. In normal times, companies use bank loans to expand — maybe launch a new project or build a new office. 

But now?

“A lot of commercial projects are just frozen, because no one really knows what’s going to happen with retail demand, hotels, travel,” Tobik said.

Instead, companies are paying their loans back and focusing on their existing businesses.

Kent Belasco, who runs the commercial banking program at Marquette University, said the thinking is: “If my business is pretty much closed, there’s not a whole lot I can do, except to make sure that I can get my employees back and that I have a business in the future.”

He said the dropoff in loans is also an indicator of how banks are feeling about the future.

Rather than issuing new loans, he said banks have been bulking up their reserves in case their existing loans go bad.

“They’re looking ahead, and they’re a little bit concerned, because I think they’re anticipating losses that are going to come out of this,” Belasco said.

Bigger banks have enough capital on hand to absorb losses, he said. But smaller banks could have trouble.

COVID-19 Economy FAQs

What does the unemployment picture look like?

It depends on where you live. The national unemployment rate has fallen from nearly 15% in April down to 8.4% percent last month. That number, however, masks some big differences in how states are recovering from the huge job losses resulting from the pandemic. Nevada, Hawaii, California and New York have unemployment rates ranging from 11% to more than 13%. Unemployment rates in Idaho, Nebraska, South Dakota and Vermont have now fallen below 5%.

Will it work to fine people who refuse to wear a mask?

Travelers in the New York City transit system are subject to $50 fines for not wearing masks. It’s one of many jurisdictions imposing financial penalties: It’s $220 in Singapore, $130 in the United Kingdom and a whopping $400 in Glendale, California. And losses loom larger than gains, behavioral scientists say. So that principle suggests that for policymakers trying to nudge people’s public behavior, it may be better to take away than to give.

How are restaurants recovering?

Nearly 100,000 restaurants are closed either permanently or for the long term — nearly 1 in 6, according to a new survey by the National Restaurant Association. Almost 4.5 million jobs still haven’t come back. Some restaurants have been able to get by on innovation, focusing on delivery, selling meal or cocktail kits, dining outside — though that option that will disappear in northern states as temperatures fall. But however you slice it, one analyst said, the United States will end the year with fewer restaurants than it began with. And it’s the larger chains that are more likely to survive.

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