Commercial Tip of the Week

Commercial Lending Down. WHY?

I saw in a recent report that SBA lending i s down 38% on the year.  That’s a big contraction and is surprising the government who threw money at the SBA so SBA could waive its fees.  The thought being that with no fees, SBA lending would increase.

But fees don’t stop people from using SBA – especially since they get rolled in anyway.  What is slowing down the lending is the contraction in local bank lending.  Here is the almost comical government conundrum….they are auditing banks MUCH stricter, grading them hard on amount of bad loans on their books compared to assets – called the “Texas Ratio”.  Banks right now are under a severe fear of the government which can step in and take them over if the ratio hits 100.  So banks are building their reserves by lending less, and when they do lend, they underwrite from an avoidance mentality – avoiding bad loans instead of aggressively doing good loans.  Meanwhile, the government is pushing these banks to lend more.  It is a most unfortunate catch-22, they need to police banks more since they are failing but they also need them to lend to help the economy – and doing the one limits the other.

Now, before you think I am just bashing the government, President Obama has proposed raising the loan limits on SBA loans and this is definitely a good idea.  This costs the taxpayers nothing, and will certainly increase lending.  They are trying. Banks are afraid, they are lending less.  With commercial delinquencies rising, that is not going to change for a while; I think at least a year before the banks get back into the game, maybe longer.  So you have these cream puff borrowers, who are used to calling their bank and getting whatever they want, being denied by that very bank that used to beg them for their business.  These borrowers don’t know where to turn.

Some are calling on the brokers that did their residential loan. But residential brokers don’t know where to go or how to do commercial deals – the easy "NO DOC" Interbay/Greenpoint/Lehman days are gone. 

Commercail Capital is the place to go for all your commercail financing needs. Call Brett Swearingen at 800-557-0682 or email him at brett@ccofok.com to get started.