Banks are having to manage tough conversations with borrowers to evaluate whether their businesses can withstand the increased strain of higher loan payments because of higher interest rates.
Bankers report that the burden is on the borrower to prove to lenders that they have the cash flow to support new loan requests at the current elevated rates. Some borrowers may think twice about obtaining growth-oriented capital, for, say, equipment or acquisitions, while interest rates are high. But others may still be seeking debt capital to keep their businesses operational.
Large banks were approving fewer small business loans at the end of 2022, with approval percentages in November dipping to 14.6%, the second lowest total in 2022, according Biz2Credit’s Small Business Lending Index.
Other lenders were approving small business loans at slightly higher rates — credit unions at 20.3%, small banks at 21.1%, institutional lenders at 25.8% and alternative lenders at 27.4%. Still, the approval numbers weren’t much different year over year, with approval rates actually about 1% higher at most lending institutions, except at large banks, whose approval rates were .2% higher year over year. Only credit unions, down .4%, were approving fewer loans than in 2021.
“We are having conversations with our existing borrowers to better understand the impact higher rates are having on their business or property and to determine if a loan modification might be needed to assist the borrower for a period of time,” Matt Fuhr, executive vice president and chief credit administration officer at Hanmi Bank, told the Business Journal.
Tough lending parameters haven’t necessarily slowed potential borrowers from requesting access to capital, but some bank executives are seeing a decrease in the number of borrowers who are qualified to take on the extra debt with higher interest rates.
“In some instances, the existing cash flow doesn’t support the amount of debt requested,” said…
Read the full article here
