Moody’s: Credit Still Scarce While Issuers Shed Debt

August 27, 2010

Large companies continued to shed debt while the credit markets remain closed to a large swatch of small businesses, according to a report published by Moody’s Investors Service Friday.

Moody’s cited a study by the National Federation of Independent Business that reported 13% of small businesses found credit harder to access in July, a small bit less than the record 16%. Small companies that rely on bank credit saw their total debt decline by a record 8.3% in the first quarter to $3.5 trillion.

“Larger firms may not be shedding debt at a rapid clip, but they are deleveraging as they pile up cash by the bucketful,” said Moody’s economist Ben Garber in the report. Nonfinancial corporate cash increased by 26% in the first quarter.

However, small banks are closing at a greater pace, with 118 banks closing so far this year compared with 77 in the same time frame in 2009. “Yet after a net tightening of lending standards to small businesses for thirteen straight quarters, much further relaxation must transpire before such credit is considered plentiful,” said Garber. 

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