The Hidden Changes of the Banking Industry

When you read about banks failing and see on TV that the FDIC has taken over a bank, are you thinking about what all of this might mean to YOUR BANK? Well you should—we all should—especially if you use that bank to support your business.

Simply, banks are struggling with their prior decisions for investments, mostly real estate, and now have uncollectible loans and have to create cash reserves for future uncollectible loans. Cash comes from the bank’s fees, deposits and investments. As bank costs increase and deposits decrease banks can get caught in a very unhealthy position. Additionally, state and federal regulatory agencies have increased their audit frequencies and the diligence of those audits, requiring greater adherence to policy and standards.

All of this means that your bank may have to change how it has been operating or that they have ceased providing certain services. Here are some “surprises” about your bank that you have told us about:

• No longer accepting real estate as collateral – must find other source(s) of collateralization for notes coming due.
• Not interested in renewing a note if it is for real estate – must find a new lender.
• Nightly overdraft protection disappeared overnight.
• Speculative real estate is of little to no interest.
• Very conservative/stringent on underwriting new loans.
• The loan to value has dropped significantly.
• The value of real estate holdings has dropped significantly.

Be proactive in knowing what is going on with your bank. Research the bank on the internet by looking for recent articles that may highlight concerns. Make an appointment to meet face to face with your banker, but before you go, do these simple things:

1. Document a few questions to ask about the bank’s stability and longevity.
2. Refresh your Business Plan.
3. Pull out your business and personal last quarter and most recent annual financials (make sure they look professional).
4. Create a cash forecast for your business – “Cash is King” and it takes cash to generate cash!

Don’t give up HOPE! We do know that there are banks out there that are lending money for real estate. If your financial position is healthy and the property is viable, you should be able to find a bank interested in financing the location and building a relationship with you and your business.

Need help with this?  Let me know what questions you have regarding this subject!