Strong Interest Coverage Interest coverage ratios, another critical indicator of a company’s ability to meet interest payments, have remained strong. Interest coverage rose slightly, from 10.67x to 10.80x, indicating the increase in interest rates hasn’t derailed businesses’ ability to meet interest expenses. Abrigo receives more data daily, and the preliminary data indicates that the increase in rates and the end of stimulus measures are finally being felt. The rate decrease in September came at just the right time to prevent further financial stress. Early 2024 figures show a dip in DSCR to 4.62x. However, leverage continues to improve. Historically, increased line utilization, particularly in somewhat benign times, has been a cause of concern since higher utilization can reduce a borrower’s “dry powder” for downturns. However, Abrigo’s data shows that businesses are meeting obligations and reducing overall leverage. As banks and credit unions weigh small business portfolio expansion, monitor loan demand and assess the health of borrowers, private companies’ financial condition sheds light on the option of adding new, creditworthy borrowers in a higher-rate environment. The Board’s Role in Guiding Supportive Lending Responsibly Directors play a key role in guiding portfolio growth responsibly by setting policies that allow the financial institution to respond to business owners’ cash flow needs while balancing risk and growth objectives. The real issue for many bank and credit union leaders is how to add incrementally to that portfolio in a profitable manner. Investing in small business lending technology, such as automated loan processing that allows for easy lender intervention and supports Section 1071 reporting, can foster growth in a way that enhances risk management. Automating administrative tasks lets lending teams dedicate more time to building client relationships, making informed decisions quickly, and maintaining compliance with minimal disruption. Privately held companies are showing adaptability in today’s economic climate. By leveraging data on their business performance, banks and credit unions can confidently offer client-centered solutions that reinforce trust and strengthen their role in helping small businesses and their communities continue to thrive. 11 Colorado Banker
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