Banks are even tighter with providing loans for businesses because they’ve kind of afraid. Two out of ten loans they gave were in trouble. Those who took money do not manage to pay their installments. Worse, they end up not being able to give any money back. Insolvencies were lower this year, but the success rate remains low.
American companies are over-indebted, and many have minimal chances of repaying their debts on time. They enter a vicious circle in which they neither have the money nor can access new loans.
Bank data show a steady rise in the rate of problem loans. If in 2008 the rate of non-performing loans did not exceed 3 percent of total loans, the average jumped from 19 percent last year and now goes to 20 percent.
The growth trend of non-performing loans will continue in 2014 because access to new loans is more complicated. Banks recovered the money from bad payers, so the main concern became debt management, while lending was left in second place.
The danger of restricting access to credit is that companies will be drained of liquidity. They cannot function without money, so they cannot generate other funds to cover their debts. And then they go into insolvency to defend themselves from creditors for a while. Since the beginning of the year, more than 10,000 insolvency cases have appeared at the Trade Register. It is a 7 percent lower number, but the risks remain.
According to data from the American Insolvency House, the number of promissory notes refused by banks has increased. In the first half of the year, the amounts refused to pay exceeded 1.3 billion dollars, ie, 70 percent of the total last year and 90 percent compared to 2011. In this situation, the solution is restructuring.
Over-indebtedness can be reduced if a credit restructuring is made, which will better address the situation of companies in difficulty. The problem is that too few companies manage to reorganize successfully to survive. Insolvency specialists show that less than 5 percent of companies successfully get out of this debt cycle. The rest go bankrupt. And banks are the most exposed. They recover, on average, at most one-third of the non-performing loans granted to companies.