If you believe the news reports, anticipation of an economic
slowdown is making banks a little skittish. Some have even voiced
the possibility of tightening their purse strings when it comes to
small-business lending.
Although the Asian economic crisis has already motivated some
banks to more carefully scrutinize their lending
procedures--particularly to high-tech firms--consumer confidence
and spending remain relatively high; gross domestic product rates
keep rising; and unemployment is still low in most places. With all
the conflicting economic signals coming at you, how do you
determine your borrowing prospects for the year ahead?
"The risks of lending are much greater than they were six
months ago," says James Chessen, chief economist for the
American Bankers Association. "There's greater uncertainty
about how quickly the economy will grow, particularly in the face
of the recessions in Asia and Latin America."
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Federal regulators are also concerned about bank underwriting
standards and have urged financial institutions to reconsider their
lending practices, says Karen Thomas of the Independent Bankers
Association of America (IBAA), who adds that competition is
spurring some banks to match the generous lending terms offered by
others.
According to Chessen, Russia's decision last August not to
pay a considerable portion of its foreign debt sent a chill through
the international financial community about developing
countries' ability to meet foreign debt obligations.
Consequently, equity and debt markets worldwide have dried up.
"Many businesses that would have gone to the equity and debt
markets are now going to banks," he explains. This has
precipitated demand for commercial and industrial bank loans.
Contrary to Chessen, who expects the U.S. economy to slow this
quarter, Ken Goldstein, an economist with The Conference Board, a
business membership and research network in New York City, says
discussions of a slowdown are nothing but "scare talk."
"Economists are saying things are good but can't last
forever," Goldstein says. "Someday, that story is going
to have validity, but that day ain't now."
Nor will it be any time soon, Goldstein contends. He says while
good growth might become moderate growth by November and interest
rates may be a little higher, a recession is not even in the
cards until 2001, if it happens at all. (For another point of view,
see "Going Down?").
So what does all this mean to you? Loans are available, but
expect bankers to ask more questions if you rely on foreign exports
or foreign buyers.
"If [those involved in global trade] can make the case that
they still have willing buyers, [they] can get loans," says
Chessen.
The IBAA's Thomas agrees, adding that small, creditworthy
firms won't have to worry about a credit crunch any time
soon.