I wrote a piece not long ago about not keeping more than $250K in any one bank, given the fear we all have of local banks collapsing. As noted previously, any bank, no matter its size, can fail.
But that’s only a small part of the story. In order to illustrate the problem, I’ll ask you to switch roles and become a lender.
If you were in charge of your local bank, would you have a lot to worry about? Absolutely.. When the FDIC takes over a bank, everyone in top management loses their jobs. If you had an equity stake in the bank, you’d lose that as well.
What’s the easiest thing to do to make sure your bank can withstand a run on deposits? You could stop lending and make sure that you keep as much money in house as possible to combat a possible run.
A recent opinion survey by the Fed’s Senior Loan Officers show that 45% of US Banks are tightening their lending standards. This means that they’re making it harder for Entrepreneurs like you to get loans.
Whether it’s higher credit scores, more collateral, or better cash flow, financing has already become difficult. But that’s not the only part of the story when it comes to the credit tightening opinion survey.
The last four times that the score was in this range. our economy recessed. Please realize that this is basic cause and effect economics.
Inflation becomes a problem so the Fed starts raising interest rates. The bonds your bank holds go down in value 15% – 20%. The ratings companies say that they “may” be worried about the solvency of your bank and this causes a run on deposits.
What can you do? As a lender, you stop lending. It happens every time.
Let me leave you with this.
The question becomes, what does this mean to you?
Please realize that if you walk into any bank today and say that you’d like a loan, they’ll be more than willing to have you fill out an application. They’ll be cordial, maybe even inviting, but that may be exactly where it ends.
In these sorts of economies, the number of loans that die in credit before they even get close to a committee vote, increases exponentially. Banks come up with the most exotic and ridiculous reasons for saying no.
Let’s remember that they’re always worried about legal actions. There’s all sorts of laws on the books that say they can’t turn down a loan based upon anything from sex ior race to your age or sexual proclivities.
This means that they’re going to be vague if they say no, and that’s the part that really rankles.
Be smart enough to take your loans everywhere. When someone says no, it’s probably just a bank manager trying to hang onto their job. You’d probably do the same thing.
Don’t take it personally. It’s only business.
Getting your company through these difficult times isn’t going to be easy, but we’re all going to get through this. Let’s get through it together.
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