On Credit: What About Commercial Loans?

mps_logo1Banks are still not lending much these days and last year  had their sharpest decline in lending in 67 years.  A friend who is a Vice President at a major US bank recently told me: “We have lots of money to lend, just no one that we want to lend it to.”   So how are cash-poor companies with good growth potential going to grow?

The simple truth is that many won’t.  But for others there are several options:

  • Go slow
  • Bring on new equity partners
  • Align with better credit worthy people (think co-signing here)
  • Get trade credit from larger suppliers
  • Talk to your credit union or community bank (especially those without a lot of mortgage loans)
  • Keep talking to your bank.

One CEO told me he met with 32 banks before he got one to believe in him and his business plan.  From the banks’ perspective they are still working through a mountain of bad real estate loans and the commercial credit crunch is just starting to emerge.  So what will banks do about all these commercial notes?  I think their options are limited.  If they call the note the owner may go into foreclosure and fire sale the property.  It seems to me this creates a FASB 157 issue for banks and would require them to re-value their balance sheet which just exacerbates the problem.

I predict we’ll see banks extend credit and hope for better days ahead to refinance, syndicate or sell off these commercial loans.   The bigger opportunity here may be for a new breed of commercial capital to fund growing companies – perhaps a bank, mezzanine lender, private equity investor and venture capitalist all blended together to create an organization that actually lends money to companies.  We don’t seem to have many of these nowadays.  I’m thinking I should do research on Banca Monte dei Paschi di Siena S.p.A., located in Siena, Italy.  It was founded in 1472 it is the oldest surviving bank in the world.  Surely they have been through this before.