In every industry there are the normal channels of doing business and those that operate behind the scenes. In every industry, to know other methods often it means people have to be in the business. For example, if you operate a small business you may have to dip into your personal accounts depending on the cycle of the business. When you gain size, you want a bank to finance your business, and sometimes you will need extra financing for a large contract. Maybe you will sell your receivables to a factoring company for the cash upfront and the factoring company collects the payment owing. Depending on the economy and how many loans your primary bank has, you might need to look to a second bank or financial institution. The larger your company, you will deal with multiple lenders or investors for some will offer secure funding but higher interest rates, but your company needs the secure funding. If your company is very large, it can often dictate terms to the bank.

In an article by Laureen Hirsch of the New York Times News Service, it often happens when there is crisis in the banking sector, the first reaction of the regulators is to tighten regulations of the bank. There are very good reasons to doing this for protection of the depositors is in the forefront of the regulators. However, when the regulators do their thing for the good of the sector, the consequences are the banks tend to lend less or become tighten lending to businesses.

Businesses will look elsewhere for loans. There is a growing number of non-banks that can give loans but do not take deposits and the names include Apollo Global Management and Blackstone.

According to data from Preqin, the private credit industry has grown sixfold since 2013 to $850 billion.

The returns on private credit since 2000 exceed loans in the public market by 300 basis points according to Hamilton Lane, an investment firm. Those big returns credit an appealing business that once focused on private equity.

Private equity is increasingly extending credit to firms that traditional banks will not touch such as small and mid-size enterprises. These companies are not necessarily companies with good credit ratings.

The issue for some regulators is as private equity takes lending from the banks, what happens if private equity firms which are not regulated get into trouble? who rescues them and why?

Linking to dividend paying stocks, at the stage profitable companies that can pay dividends, they should have very good relationships with the banks they deal with. Sometimes you will see a bank executive on the board or board member on a bank board. (Years ago, a company had arrived in the big time if the President of the company was invited to sit on a bank board. ) Profitable companies tend to do their banking with the large banks in the system and investors have little worry the banking relationship would change. Sometimes investing in profitable companies gives one less aspect to be concerned about in the broader economy.

There are more questions than answers, till the next time – to raising questions.