Why Do Firms Borrow Directly from Nonbanks?

Abstract Analyzing hand-collected credit agreements for a sample of middle-market firms over 2010–2015, we find that one-third all loans are directly extended by nonbank financial intermediaries. Two-thirds such lending can be attributed to bank regulations constrain banks’ ability lend unprofitable and highly levered borrowers. Firms with negative EBITDA debt/EBITDA greater than six 32$\%$ 15$\%$ more likely borrow from nonbanks. These pay significantly higher interest rates, especially following the 2013 leveraged loan guidance revisions. Nonbank borrowers also receive different nonprice terms compared borrowing banks. Authors have furnished an Internet Appendix, which is available on Oxford University Press Web site next link final published paper online.