The Zacks SBIC & Commercial Finance industry consists of companies that provide finance to small and mid-sized privately-held developing firms, which are generally underserved by traditional banks and other lenders. Firms suffering from financial distress are the primary target clients of these lenders.
Products offered by the industry participants also include mezzanine loans that typically pay high interest rates and could be converted into equity in the target firm.
Here are the three major themes in the industry:
- Coronavirus-induced economic slowdown has resulted in a decline in commercial activities, in turn lowering the demand for small business loans. Also, lower interest rates will result in reduced investment income, and are likely to hurt SBIC & commercial finance stocks. Also, prepayments and refinancing are expected to rise, which may hamper profitability to some extent.
- Given the virus outbreak and subsequent halt in business activities, the majority of sectors wherein SBIC &