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The Demand for Loans: Is it Running Hot or Cold?

(9/24/10)

Though demand for most categories of loans still registers cold, some segments of lending have actually turned lukewarm. The demand for mortgage loans is still overwhelmingly reserved for refinancing vs. purchases but other segments of lending which have seen a pick up in demand include loans for autos, student loans as well as business and asset backed loans. A record supply of capital is available for lending yet there remains tepid demand so the competition amongst lenders is fierce. Commercial lenders have seen their margins shrink dramatically as the supply of creditworthy borrowers is limited, putting those shopping for loans with top notch credit in the driver's seat. Though many businesses may not be moving much in the way of products or services in this economy, they are still operating profitably as a result of cost cutting measures and efficiencies so they don't need to borrow even at these record low rates. Many businesses throughout a number of industries seem to be stuck in a holding pattern as they hang onto their cash reserves out of concerns of higher taxes and increased regulation which weigh heavily on the decision making process. As consumer demand remains weak while the deleveraging process continues, businesses seem content to remain as liquid as possible and are intent on avoiding taking on any unnecessary debt.

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