Mega Loans A Sign That Commercial Lenders Are Loosening Up

The first quarter of 2011 has been highilighted by some larger commercial financing deals in both Canada and the U.S.

And while lending levels have not completely returned to the pre-recession period, things have greatly improved over the most recent months.

To further make the point, here is an article from the CTV news that talks about mega loans being used for financing takeovers.

http://www.ctv.ca/generic/generated/static/business/article1969220.html

This draws us to a couple of interesting observations.

First, the article talks about how commercial lenders have been getting more aggressive in providing short term bridge loans for acquisition and take over targets.  This type of business financing is put into place to close the deal and by time until the long term funding can be arranged.  But there is lots that can go wrong in the interim which could delay or even prevent the long term take out from happening, so in and of itself, this is a farily risky form of business financing.

That being said, business financing sources are making these types of deals, speaking to their comfort level in where the economy is at and their need to get back in the game to a larger extent to increase their profits.

These type of mega short term loans are also potentially a major boost to the economy in a number of other ways.  The nature of a recession is that there is going to be industry consolidation and restructuring.  But this can’t happen if there isn’t any money available to finance consolidating type activities.

As commercial financing starts to flow more freely, more of the ineffeciency in the market is going to get cleaned up faster and move towards positive production and job creation.

And even though we are talking about mega loans here, this does likely have a trickle down effect to small and medium sized businesses whom have had a hard time securing reasonably priced capital during the last two years.

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About the Author Brent Finlay