Loans on sale: Credit market seasonality, borrower need, and lender rent seeking

Using data from the corporate loan market, we document substantial seasonality in corporate borrowing costs. Firms borrowing during seasonal “sales” in late spring and fall (May/June and October) issue at 19 basis points cheaper than winter and late summer borrowers (January/February and August). Given the ability of firms to move their funding demand to low priced periods, and lenders to shift their supply to higher priced periods, the effect should dissipate. The fact that seasonal patterns persist suggests frictions preventing borrowers from timing the market, and/or lenders unwilling to compete the effect away. We document evidence of both. First, we show that for weaker borrowers, the cost of shifting demand to cheap periods is high. Instead, they appear to borrow on an as-needed basis and are therefore vulnerable to funding non-deferrable projects during high interest rate periods. On the supply side, we show that in an imperfectly competitive market, banks may find the seasonal pattern an effective way to price discriminate among patient and impatient borrowers. Petersen thanks the Heizer Center at Northwestern University’s Kellogg School for support. The views expressed in this paper are those of the authors. We appreciate the suggestions and advice from seminar participants at Catholic University of Portugal, Chicago Federal Reserve Bank Structure conference, Depaul University, Goethe University, San Francisco Federal Reserve, Universities of Mannheim, Michigan, Porto, Oregon and Yale University.