For Better or Worse, Credit Crunch Will Be Around for a While
Business borrowers in metropolitan Washington continue to bemoan what they call a credit crunch as local banksÛÓshaken to the core by a stubborn recession and staggering losses from commercial real estate loansÛÓapply stricter lending standards. Those tighter standards are being blamed for a credit crunch. If thatÛªs really the reason for the credit crunch, then a good many business borrowers will face a credit crunch after the recession ends.</br></br>The future is now. in fact Strong character and past banking relationships notwithstanding, business borrowers will be held to stricter standards, having to prove up front that they have the wherewithal to repay. Like it or not that's a legacy of the unprecedented growth of the 1980s, which banks helped finance apparently with too few questions asked.</br></br>Those who rail against the banks for creating the credit crunch had better get used to the idea, if they havenÛªt already, that the banking business just won't be the same after struggling through one of the worst slumps ever in the commercial real estate industry. Long after the recession is over, banks will likely be more conservative than ever in granting loans to buriness borrowers.</br></br>For those who became so accustomed to informal banking relationships, in which lines of credit were more like slush funds for members of a social club, the handwriting is on the walL Not only have bankers been burned by liberal lending practices of the past, but regulators, reacting to the real estate recession, also have put the fear of the banking gods in loan officersÛª hearts, insisting that loans be made by the book. As a result, banking relationships that many business borrowers enjoyed in the past have changed dramatically.</br></br>ÛÏThe process of granting credit in the Ûª90s will be different," predicted William C. Harris. Washington region president of Crestar Bank. ÛÏThere will be tougher standards and greater documentation" required before a loan can be approved, Harris added. ÛÏThe banks have learned a very hard lesson and the regulators are forcing the banks to ask a lot more harder questions.