The subprime loans for small businesses have many scratching their head and wondering if we have learned any lessons at all about the subprime loan. Small business is now in the market for subprime loans and getting them.
Wall Street Frustrations
Frustration grows on Wall Street as hedge fund managers, private equity firms and other financiers are tiring of the low returns on other debt and have turned to more lucrative and riskier investments. Eyebrows arched and heads turned when a company was able to borrow more than eight times its earnings, striking up fears in other investors and a quick reminder of the dangers in subprime loans. These leveraged loans are usually awarded to companies with high debt or considered speculative. Leveraged loans disappeared shortly after 2008 and the economic collapse but have returned recently, a sign of proficient lending.
A Change in Lending Habits
Investment and private equity firms are bankrolling and owning these loans after banks face regulatory actions after the financial collapse of 2008. Regulators, finance lawyers, and rating agencies are uneasy about the return to credit risk with prudent lending practices nearly ceasing and signs of a “covenant bubble” were being seen. Regulators are close in case we have another bubble burst.