Monday, September 11, 2006

Will Real Estate Loans to Business Dry Up?

Today's Wall Street Journal (subscription required) reported on the front page that a clash between bankers and regulators may result in a decrease in loans issued to small businesses secured by their commercial property. This report comes less than two months after I wrote that home equity loans may be drying up as a source of financing for business as the residential market experiences a drop in home values.

Regulators are concerned about the rapid growth of commercial real estate loans and how this growth has impacted not only bank loan portfolio concentration (too many eggs in the real estate basket), but also whether banks are sufficiently capitalized (is the basket strong enough). If a new draft for "guidance" is formally issued on real estate lending for banks as anticipated, the availability of bank loans secured by commercial real estate will likely be reduced.

So is the message the same as back in July? Yes!

If you have borrowed money for your business and used the equity in your residence or commercial property as collateral, your banker may a little less flexible in granting your next request for an increase in financing. If your business has receivables, inventory or equipment, now is a good time to evaluate other sources of potential financing. Don’t wait till it’s too late!

Please feel free to contact me with questions or ideas for future articles!

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