KBRA Releases Research – Online Small Business Lenders Regain Lost Ground
NEW YORK–(BUSINESS WIRE)–KBRA publishes research on the small business lending asset-backed securities (ABS) industry, with a focus on online small business lending ABS, which KBRA defines as transactions where the pool Collateral consists of assets with an initial debit balance of $1 million or less.
Small businesses have seen their revenues drastically reduced or even stopped altogether due to the COVID-19 pandemic. To mitigate some of the fallout, the US government provided stimulus funds through Paycheck Protection Program (PPP) loans. Although the PPP program has expired and business activity has increased, ABS issuance for small businesses has not recovered to pre-pandemic levels.
Key points to remember
Online lenders gained market share in the small business lending space before the pandemic, only to lose significant ground in the era of PPP lending. Online lenders have since started to regain some of this lost ground, which can translate into higher ABS volumes.
Online lenders offer small businesses various types of credit products, including term loans, lines of credit, and merchant cash advances, all of which have unique attributes that KBRA considers in its credit analysis. .
Given the unique attributes of credit products, KBRA analyzes small business loan ABS agreements using space-specific metrics, such as right-to-receive (RTR) amount, performance ratios, and missed payment factor.
The regulatory landscape for small business lenders continues to evolve, with some states requiring lenders to provide information similar to consumers, as well as the Consumer Financial Protection Bureau (CFPB) noting that it may implement requirements for lenders to collect demographic information about applicants, and the federal government’s investigations of PPP lenders.
Recent trends in the economy and the potential for a recession could dampen demand for credit from small business lenders, which could disrupt future issuance of ABS in space.
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KBRA is a full-service credit rating agency registered in the US, EU and UK, and is appointed to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in several jurisdictions.