On the domestic economic front, 2018 will likely be remembered as a landmark year for a variety of reasons. Equity markets
experienced their most volatile year in a decade, housing prices soared to highs they hadn’t seen since the real estate market
collapsed, and the first major tax reform in 30 years was officially implemented, pushing the corporate tax rate to its lowest
level since 1938.
However, in the midst of these headline-grabbing economic trends, the U.S. Federal Open Market Committee was making what were
possibly the most broadly impactful of these fiscal changes, raising the federal funds rate one hundred basis points.
This marked the first year since 2006 that the committee increased interest rates by a full percent, and also signaled the end
of the body’s “accommodative” policies toward growth, which means the end of quantitative easing and the slow unwinding of the
Federal Reserve’s balance book.
So What Does This Meaning For Lending?
Despite the Fed’s more hawkish policies over the past few years, inflation has so far not posed much of a threat. Liquidity is
still out there even as borrowers and lenders are getting accustomed to even modestly elevated interest rates
Which might be one reason businesses have gotten so anxious about investing into a potentially uncertain economic future. Even with the tax breaks and a huge uptick in spending,
traditional financial institutions saw only
modest growth to their loan portfolios over the year, with most of their tax windfall flowing to their investors.
The Federal Reserve has seemingly acknowledged this anxiety, as well as the lack of alarming inflation signals, halting its
pattern of increases to the federal funds rate.
But, despite the supposed anxiety, business lenders are still seeing strong growth on the back of lending demand. Fintech lender
Credibly, which specializes in small business financing, securitized its loan portfolio late last year in the wake of rising interest rates. This not only made the debt an
investable asset, but also broadened the company’s potential lending capacity.
The positioning of fintechs like Credibly could serve as an important indicator of just how much gas is really left in the
fiscal tanks among the real drivers of the economy.
But that forces the question: is 2018’s liquidity party really over?
From Monsoons, New Rivers Flow
The short answer is no.
The slightly longer answer is that, in spite of an inevitable fall from 2018’s high water mark, spending conditions are still
extremely favorable for companies, especially those in the U.S.
For example, giant tech names like Alphabet Inc. (NASDAQ: GOOG) and Amazon.com Inc (NASDAQ: AMZN) still anticipate a massive amount capital spending in 2019, well above 2017 levels. And,
while sentiment indicators like the National Federation of Independent Business’ small business optimism index shows a sharp
drop-off between 2018 and 2019, additional signals like employee hires and capex spending remain historically strong.
And, if you use fintech as a bellwether, alternative lending remains among the most in-demand services among small businesses
seeking financing as well as traditional banks looking to expand their business. The need for competitive technological solutions
to effective lending was one of the prime reasons behind the BB&T Corporation (NYSE: BBT) SunTrust Banks, Inc. (NYSE: STI) deal, one of the biggest bank mergers in history.
At the same time, small business lenders like Credibly, Kabbage and Fundbox, continue to expand their own product lines, with
the former set to launch a new small
business line of credit product over the course of the year. Credibly intends this new line of credit to create more fluid
financing options for companies.
The point is, 2019 might not hold the same promise of the money pit that 2018 turned out to be, but all signs point to a year of
solid spending and expansion, especially for those who know where to look.
Credibly is a content partner of Benzinga
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