The New Credit Criteria

The New Credit Criteria

BankingIlloYOU CAN BLAME THE CREDIT CRUNCH in part for our recent economic woes, but now that recovery seems in sight, are loans loosening up? In this environment, how can businesses get the money they need to grow?

"Oregon is still looked at as being a fairly tight credit market because of the high unemployment, tremendous foreclosure rates, and the number of small and larger businesses that have failed in this cycle," says Brad Copeland, chief credit officer at Umpqua Bank. "Banks are being very careful and watching very closely."

But there is still money out there for businesses that need it. They will just have to jump through more hoops than in the past to get it. Wary lenders are pointing a more discerning eye at business borrowers. First and foremost, they'll want to see good management and a sound business plan.

"If that isn't there, it will be a tough deal to put together from the start," Copeland says.

Dan Hempy, president of the greater Portland market for Pacific Continental Bank, says lenders also want to know that all of a company's financial ducks are in a row. Even a company with a working capital line of credit that was monitored informally in the past may be required to present a borrowing base certificate when they renew.

"They will probably encounter a heightened level of concern by the bank," Hempy says. "There may be a desire by the bank to find ways to tighten up financial reporting or require
additional collateral."

Borrowers can also expect to get hit with stricter underwriting criteria, tighter loan covenants and higher loan-to-value ratios.

"There will be more equity required by the borrower to get that loan," Hempy says.

There's little appetite among lenders for speculative real estate deals,
but there are opportunities to refinance commercial properties, Copeland says. With federal stimulus money pouring into the Small Business Administration, there are more options available for small businesses, too. Rates are also attractive right now but are likely to creep up over the next year or two.

The key to getting the money you need, Hempy says, is to maintain a strong relationship with your banker and talk openly and honestly about any concerns.

"Don't hide from them if you're having problems," he says. "Your banker will work with
you as much as they can. They want to see you be successful, too."