The price of commercial lending services is expected to increase over the three years to 2016 due to the cost of borrowing becoming more expensive for banks.
Los Angeles, CA (PRWEB) May 26, 2014
Commercial lending services have a buyer power score of 3.5 out of 5. “This score reflects that buyers have a moderate amount of negotiating power due to the high number of suppliers, the moderate availability of substitutes and the recent decrease in prices,” says IBISWorld procurement analyst Caitlin Newsom. There are almost 6,000 banks in the United States, creating heavy competition among suppliers. Major suppliers include Bank of America and Citigroup Inc. This competition forces banks to be more willing to negotiate prices to gain market share, boosting buyer power. Additionally, there are a number of alternative lending options for businesses besides a bank loan. A buyer can enter into a loan agreement with a credit union or borrow funds from a private equity firm, cash-flow lender or a merchant cash advance lender. Due to the existence of alternative suppliers from which to borrow funds, banks are more willing to negotiate a lower price for commercial lending services. However, the boost in buyer power is slightly constrained because these alternative lenders typically charge much higher interest rates for business loans.
The average price of commercial lending services has been falling over the past three years, helping to boost buyer power. Prices have been declining because banks have had an oversupply of funds to lend and limited demand from qualified businesses. “While the overall number of businesses has been rising over the past three years, businesses are still experiencing high levels of risk,” says Newsom. Banks severely reduced their lending to small businesses due to the higher level of default risk. Instead, banks have been targeting large, mature businesses that are financially stable. Due to the limited pool of these large, stable businesses, banks have been lowering interest rates to attract these businesses.
However, buyer power is hampered due to the expected increase in prices over the next three years. The Federal Open Market Committee is expected to increase the federal funds rate, which is the rate at which banks borrow funds held at the Federal Reserve, increasing banks' costs for supplying loans. Banks are expected to increase the price of their loans to offset the rising cost of borrowing and to protect profit margins.
For more information, visit IBISWorld’s Commercial Lending Services procurement category market research report page.
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IBISWorld Procurement Report Key Topics
This report is intended to assist buyers of commercial lending services. Commercial lending services include various types of loans made from commercial banks to businesses. This report does not cover commercial real estate loans.
Recent Price Trend
Product Life Cycle
Total Cost of Ownership
Supply Chain & Vendors
Supply Chain Dynamics
Supply Chain Risk
Market Share Concentration
Buying Lead Time
Key RFP Elements
Buyer Power Factors
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