Banks Cutting Lines of Credit

According to CFO.com, banks are downsizing companies' revolving lines of credit and pulling out of loan syndications.

Why?

First, to preserve liquidity and shore up balance sheets after large losses in their real estate portfolios. Second, to to put money to work in more profitable loans with borrowers who are using other lucrative bank services.

Easy companies to target for a reduction are those with little if any outstanding balances on revolving lines of credit. Use it or lose it if you want your bank to keep it in place seems to be the message.

According to Oliver Wyman consultant, John Walenta, middle market companies and small businesses may be at greatest risk to modifications to their revolving lines of credit. With these customers, the banks may have contractual rights to demand full repayment at any time.

I'm hearing of more banks cutting back on revolving lines of credit to customers that are in both payment default and those in violation of covenants. Most of the banks I know also won't consider a loan in this environment without a deposit relationship. The asset based lenders are much more active as bank lending continues to tighten.

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Tags : CFO Magazine , credit lines , credit crunch , lines of credit