Saturday, June 09, 2007

Trouble Ahead for Small Banks

Less than six months ago, I was writing about the tsunami of community banks - the rapid pace at which new, small banks were opening. Over the last few years, it seemed like a slam dunk to open these de novo banks, expand to a few locations and then sell to the highest bidder.

But challenges for small banks lurked in the dark corners and the June 8th Wall Street Journal just reported in "For Small Banks, Beware 'Takeunders'" that some small banks being acquired are being bought for less than their current stock price!

One of those challenges is the increasing number of defaults in both residential and commercial real estate loans that often make up a large portion of a small bank’s loan portfolio. Not surprising. I have written a number of posts since last summer on the impact the changing real estate loan markets will have on the ability of small business to borrow to fund their businesses.

This latest Wall Street Journal article continues to support two possible outcomes for the small business loan market in the coming months. First, small business may find it more and more difficult to tap its real estate to fund its business operations. Second, as the smaller banks look to diversify their loan portfolios, they will more aggressively target small businesses to provide non-real estate loans secured by accounts receivable, inventory and equipment. This could possibly lead to the small banks joining the big banks in the "stupid bankers" category!

With all this turmoil, your small business may need help finding the right lender or telling your story the right way. Read "Matchmaking for Business Loans" and give me a call if I can be of assistance!

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