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Foreign investors take US small biz route

February 16
3:42 AM 2016

Economic odd couple -- foreign investors and small businesses-- are forging ties these days. Foreign investors are exploring growth opportunities in the US small business credit market. Foreign investors, who generally invest in US treasury bonds, are coming forward to park their funds in small business credit market. The market volatility, rising dollar and sluggish global economy are the prime reasons for shift in focus.

Contrary to the situation few years ago, there's growing interest on small business credit market among several financial institutions in the US. Banks, venture capitalists (VCs) and institutional investors have turned keen on investments in small business market place. Mostly Asian investors are looking to the US market for parking their funds.  

Forbes reports that the high volatility in global financial markets, the surging US dollar and sluggish emerging markets are in fact forcing foreign investors to switch over to small business credit market. The foreign money that left the US after the collapse of Lehman Brothers and mortgage crisis is now making a comeback to the world's largest economy.  Generally, foreign investors prefer to invest in US treasury bonds as safe haven.

The loan approval rate at institutional lenders rose to 62.6 percent in January 2016 from 62.5 percent in December 2015. The loan approvals at major banks with assets worth over $10 billion dropped to 22.7 percent, a fall of two-tenth from December. Lending approval to small banks eased to 49 percent from 49.1 percent. 

Meanwhile, some Asian nations such as Indonesia are taking measures to attract foreign investment to help their small businesses. Indonesia's President Joko Widodo is liberalizing norms to get more investment. The government has opened up 35 business sectors allowing 100 percent foreign ownership. This includes roll roads, film production and distribution and tourism sectors, as reported by The Wall Street Journal (WSJ). 

Many Asian nations are influenced by China, which is slowing down. The impact of Chinese economy slowdown is impacting not only Asia, but also the global economy. The capital outflows from China, Korea and other Asian countries look to overseas safe haven. This has turned out to be a major push for small businesses, which are facing capital crunch. 

The US has received the title of best place to invest for consecutive three years from business consultancy firm AT Kearney. The Trans-Pacific Partnership (TPP) is paving the way for reduced trade barriers to 11 Pacific Rim markets to the US economy. TPP member nations account for 40 percent of global GDP. TPP market has over 300 million consumers. TPP is also propelling foreign investment into the US markets significantly.

Another major segment that's receiving the investment of foreign investors is US real estate. The North American market is considered to be the top choice for foreign capital. The US market is attractive for foreign investors considering low interest rates and high potential for valuations. The Association of Foreign Investors in Real Estate (AFIRE) has estimated that over $2 trillion funds are in real estate assets under management globally. About 90 percent of respondents in a survey on foreign investors said they want to maintain or increase their exposure to the US market, according to BKD.

The analysis of over 1,000 small business loan applications on Biz2Credit.com indicates the surge in the loan approval rate. The Biz2Credit Small Business Lending Index rose in January 2016 as loan approvals at banks are gradually going up, while loan approval percentage at credit unions was dropped to an all-time low. 

Traditional lenders are cautious over the prevailing market conditions, while institutional lenders and alternative lenders are witnessing rising loan approval rates. The volatile stock markets and oil price drop are creating uncertainty for lenders. Generally, mainstream lending institutions don't take risk on loans amid looming uncertainty. 

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