“A very rough estimate is that slower loan growth by mid-size banks could subtract a half to a full percentage-point off the level of GDP over the next year or two. We believe this is broadly consistent with our view that tighter monetary policy will push the US into recession later this year.” – JP Morgan economists
Have you been feeling the credit crunch lately? Are you having trouble getting loans from banks? The credit crunch we are feeling now did not come out of the blue. In fact, the credit crunch started mid of last year as a result of several factors.
The combination of lenders not honoring the rates they promised and lenders backing out of lending completely contributes to the credit crunch. Now the crucial question is, are banks too broke to lend?
Heightened risk of borrowing
As a result of the very dramatic turn of events in the banking industry in the last month, there is an increased risk of borrowing because it means that the borrowers might have a difficult time paying back the loan.
As a result of the SVB bank run, several industries have been affected and a lot have lost their jobs and businesses. For those people facing difficulties, paying back loans would be more difficult than usual since their regular expenses don’t go away compounded with the new loans and an unstable income.
Fewer banks are lending
A lot of banks have been hesitant to lend while others have outright stopped lending. Prior to the recent bank run, a lot of banks were lending at a lower interest rate. They do this to attract as many borrowers as possible. On the downside, this means that those banking institutions were not able to make as much money from the loans they were giving out.
Banks that are not broke
Of course, there are still banks that do loans. There are very viable options but it’s constantly changing as everything is moving very quickly in these times of financial crisis.
While it’s accurate to say that a lot of banks are not lending, there are still banks that rise to the occasion. In terms of whose lending, they are the ones who didn’t lend at the bottom rates. They could still afford to lend right now because their interest was a little high and their volume rate was lower because they were not the cheapest game in town. The lenders taking a step back right now were the aggressive lenders. They lent at a very low rate and did a ton of deals. But they can’t afford to lend in this climate.
In the end, if banks are not meeting you, pivot. Especially if you are not as liquid but want to start your first building, private money is an option. There are other options out there. Let’s take it up in another episode of our podcast Get in the Cashflow Game with K&K. New episodes drop every week. Be sure you are subscribed to our mailing list.