The waiting game could be over in 2010, as banks could start taking hits on commercial loans portfolios when they unload them from their books.
“So far, banks have mostly been turning a blind eye to technical breaches of loans. Rather than foreclosing and being forced to take write-downs, they have held nonperforming commercial-property loans on their balance sheets, extending deadlines, refinancing debt or even selling them off to subsidiaries.”
Banks have pretty much stopped tightening credit standards, but that doesn't mean they are easing–maybe not, at least. The chart below is based on the Federal Reserve's Survey of Senior Loan Officers. The question asked is whether they tightened or eased credit standards. The chart shows "net percent," which is the percent who said that tightened minus the percent who said they eased.
In this survey, as in recent surveys, no one said he had eased. It's all tightening or staying the same. Nonetheless, the chart clearly shows the worst of the tightening is over. Also note how few banks ever admit to easing credit standards. We know credit was eased tremendously in the mid 2000s, but that hardly shows up in the chart. Talking about tightening makes better conversation with one's regulators.
Unfortunately, the data don't allow us to calibrate where we stand now compared to, say, 2003. We know that a lot of tightening was justified to get past the easy credit of the boom, but it is hard to say whether the banks have gone overboard and over-tightened. Maybe, or maybe they've just returned to a moderate stance.
The other issue that we don't fully understand: when banks say they have tightened credit standards, to what extent are they merely reporting that nobody meets even the old standards? Remember that most bank loans are real estate related. A bank that kept its lending standards unchanged might very well be making few loans today, because so few real estate development projects pencil out.
What does this mean for borrowers? First, run more cash flow projections than you ever have before. Consider a second drop in sales, consider a moderate increase in sales, and a major increase in sales. Get an idea for which scenarios put you short of cash. (Hint: you may run short of cash if sales fall, or if sales rise sharply.) Second, talk to your banker early about potential cash needs. It's never good to surprise him or her. If your banker will not be able to help you, start looking at alternatives real soon.
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Status Report: Small-Business Lending
Wall Street Journal … market for 504 first mortgages (the 50% stake made by private lenders), Coleman says. In the American Recovery and Reinvestment Act (ARRA), the SBA was … Capitol ventureMainebiz Daily all 34 news articles » |
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SBA 504 Bankers with a sense of humor?
Small Business News Some people refer to us as the "fun bankers." It's true. And they don't mean it sarcastically. To see how we've earned this title, click on the link below … |
“It’s the economy, stupid,” was the mantra of Bill Clinton’s 1992 presidential campaign. But now, as economists examine why they failed to foresee the coming of the worst downturn since the Great Depression, many are concluding that they paid too little attention to the human factor. Paul Krugman has added his voice to that chorus.
Option Capital Management’s 90% loan program for commercial real estate allows for small business owners to expand their business and lock in long term rates. Easy qualifying!!
Bridging loans are used to solve temporary cash problems. An individual or business takes out a bridging loan until permanent financing can be obtained.
Bridging loans are used to solve temporary cash problems. An individual or business takes out a bridging loan until permanent financing can be obtained.
