The United States commercial and industrial loans have shot up significantly in the wake of the coronavirus pandemic. Data gathered by Learnbonds.com shows that by the third week of May this year, the loans stood at $3.04 trillion, an all-time high since January 1973 when the figure was $134.04 billion.
After gradually rising over the recent years, the loans significantly shot up from the second week in March 2020 when the amount was $2.38 trillion. Eight weeks later, the loans grew by a staggering 27.86% to the current figure. Notably, in this period, the impact of the coronavirus pandemic was being felt across the United State with unemployment rising. From the first week of this year ($2.35 trillion) to May the commercial loans have grown by 29.6%. The lowest amount in commercial loans was in the first week of 1973 at $134.04 billion. The loan amount first hit the one trillion mark in the last week of September 2005 when the figure stood at $1.001 trillion, a growth of 0.39% from the previous week.
Before the current high of $3.04 trillion, the last time commercial loans were notably high was in the wake of the financial crisis in the fourth week of November 2008 when the number stood at $1.57 trillion. From this point, the loans lowered before rising again in the second week of July 2016 at $2.06 trillion. Another high in commercial loans was in the third week of January 2001 when the number stood at $1.09 trillion.
April witnesses highest percentage change rate in history
The Learnbonds.com research also overviewed the US commercial and industrial loans held by all commercial banks based on a percentage change at an annual rate between February 1947 to April 2020. From the data, the highest percentage change was between March 2020 and April 2020 when the rate stood at 169.3%, the highest ever during the period under review. Before the 2020 spike, the last highest rate was between December 1951 and January 1952 at 68.3%. Another notable high was in February 1973, April 1974, October 2008 at 47.5%, 43.7%, and 41.8% respectively.
On the other hand, the lowest percentage difference was recorded between June and July 2009 at 33.7%. Another notable low was in November and December 1953 at 34.3%.
Commercial and industrial loans are loans issued to a business instead of an individual consumer. In most cases, these loans are short terms and may have an interest rate based on the LIBOR rate or prime rate. They are mostly secured by collateral owned by the business requesting the loan. Businesses that apply for commercial and industrial loans leverage them to finance capital expenditures or provide working capital.
Coronavirus leads to spike in commercial loans
In the United States commercial loans spiked at a period when the impact of coronavirus was being felt on the economy. Many businesses sought to bulk up on cash or replace lost revenue. The money was channeled towards keeping employees on a payroll. Most of the businesses have been forced to fire or send some employees on unpaid leave. Some of the popular commercial loans include permanent loans, bridge loans, commercial construction loans, takeout loans, and conduit loans.
It is worth noting that despite US commercial banks issuing the largest loans to businesses ever, they had earlier tighten their borrowing terms amid the pandemic. Based on the economic uncertainty imposed by the coronavirus pandemic, most banks were forced to tighten borrowing terms since they were not sure about the future. According to recent Fed research, in a bid to minimize risks, most banks focused on existing clients rather than granting loans to new clients. According to banks, their clients’ liquidity needs and actions to mitigate the effect of the crisis on their clients who are experiencing challenges.
Notably, the loans were not issued to all sectors of the economy. Some sectors of the economy are being viewed with caution. Agriculture, energy, and retail commercial lending are areas where banks are being more cautious. The government stepped by providing a stimulus package to businesses.