ANALYSIS
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Edgy Banks Crack Down on Revolving Credit Lines
Shorter loan maturities, higher interest rates make 'safety nets' less safe for businesses
By Clay Dillow
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Posted May 4, 09 9:04 AM CDT
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(Newser)
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Banks, lashed by the credit crunch and wary of defaults, have shortened the terms on revolving credit lines—typically running for 3 or 5 years—to less than a year, the Wall Street Journal reports. Often a little-used safety net before the recession, so-called revolvers had low interest rates; now, banks are charging higher rates determined by companies’ credit ratings and the costs of insuring the debt.
Both businesses and consumers are facing tougher terms at a time when access to cash can be the difference between surviving the downturn and not. Around $600 billion in revolvers are set to expire between now and the end of 2010. In the first quarter of 2009, 72% of revolving credit lines issued to investment-grade companies had 1-year maturities; none had 5-year terms.