As the Banks Pull Back, Investors Need to Find Alternatives

Following a whirlwind of Fed activity which saw a string of 10 consecutive rate hikes in just over a year,  The Fed took a break on raising interest rates at its June 2023 meeting. The central bank's benchmark interest rate remains between 5% and 5.25%, its highest in 16 years, according to The Washington Post.

For the Fed, an economy that is balanced—not too hot, not too cold--is the perfect scenario. When the economy booms and “runs hot,” distortions like inflation and asset bubbles can get out of hand, threatening economic stability. That’s when the Fed steps in and raises interest rates, which helps cool down the economy and keep growth on track. At times it can be hectic, to say the least. Finding a lender who can weather the storm of fluctuating rate hikes will play a key role in your lending needs.

It was already difficult for businesses to borrow money earlier this year. But following the collapse of three US regional banks and a series of rate hikes by the Fed, getting a loan has become increasingly more difficult. Indeed, more lenders have stiffened their standards, according to the Federal Reserve’s quarterly Senior Loan Officer Opinion Survey (SLOOS).  

Alternative sources for capital are emerging and have caught the attention of borrowers. For instance, Newport Capital offers 6- to 12-month loans with fixed rates that don't fluctuate based on federal interest hikes, but rather are determined by the project. The firm’s approach to deal underwriting, combined with its discretionary capital, allows for timely approval and an efficient funding process. Capital amounts range from $1 million to $10 million and can be deployed across the capital stack to meet the project-specific needs of its clients. Newport Capital is an option for fast funding to stabilize the project and then to secure long-term financing.

Round and round, it goes

Now, the Fed is looking at the impact the prior rate hikes had on inflation and the overall economy. In addition, the Fed is looking at the impacts of other economic activity, namely the collapse of three banks this past spring. It’s sort of like the board spinning game Round and Round It Goes, Where It Stops, Nobody Knows. Indeed, further rate hikes may be back on the table, with some Federal Reserve policymakers indicating there might be up to two additional rate hikes of a quarter-point each before 2023 comes to an end. Others were less aggressive in their forecasts, only predicting a single quarter-point hike. However, just two policymakers believed that rates would stay where they were through the end of the year. Additionally, Powel said at the June meeting that the Fed wants to move at a less aggressive pace going forward when it comes to rate hikes. "Given how far we have come, it may make sense for rates to move higher but at a more moderate pace. It's just the idea that we're trying to get this right," Powell said.

Accounting judgments may need revisiting (e.g., lease reassessments, conclusions around whether the effect of discounting is material for long-term provisions). Implementing mitigating strategies and structuring future contracts will also require attention to avoid adverse accounting consequences associated with rising interest rates. The Federal Reserve is next set to meet on July 25-26 this month. It isn't clear if rate hikes will resume then or if the Fed will wait a bit longer. Rate changes usually take "at least 12 months" to have "widespread economic impact," according to Investopedia. Nonetheless, non-traditional banks might be the perfect solution to your lending needs. That makes capital sources like Newport Capital a compelling option today. For more information on how we can help you in your lending needs, please visit us here: Real Estate Private Credit - Newport Capital

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