by Larry Indermuehle, CEO

The global capital markets will continue to improve through the introduction of tighter regulations, the implementation of new lending standards and the gradual continuing stabilization of local banks. But we must be patient, as this works through the economy. Practices to better safeguard major institutions from exposure to significant financial losses are now being implemented. At this point everyone is fully versed on what mistakes were made and are frankly tired of discussing it. To make matters worse, it has been a while since we have had to sit idle economically without businesses doing what businesses do; buy, sell, trade, invest, hire, grow, expand, research and develop. Instead, today businesses are reducing, merging, closing, or holding on for better days to come. At best, businesses today are mostly sitting on the fence, waiting for signs that the economy and their business segment is improving. The reality overall is that things are not quite as bad off as you might think and not nearly as bad as they could have been. Fortunately good things are starting to happen in Texas, and specifically in the Houston area, and that includes the flow of money available from local and regional banks.

Nearly every business in America is making adjustments in spending. Most companies can improve by reviewing expenses and making adjustments, but as you would expect, most are not guilty of mishandling their financial resources. Most financial institutions in fact, are not guilty of mismanagement. A growing number of lenders have plenty of cash (billions to be exact) to lend to qualifying users. That means companies, groups and organizations whose bottom line has been holding steady or growing and have been waiting for the right moment to make “the move” and buy something, or expand – now might be the time.

Financial meltdowns and economic crashes do not come and go without changes being made to laws to protect consumers. The current economic recession we are in will force its share of legislative and governmental oversight adjustments. Some of these corrections will come with strong push back from the industry but true to the basic nature of a free market economy, creative minds will prevail and aggressive opportunities will find their way to the marketplace.

Changes in lending standards are an obvious correction that is already in motion to prevent excessively aggressive, poor lending standards. These changes will be somewhat common sense and will require pulling back on the reigns of underwriting standards. Expect in most cases to put more cash down in equity to meet guidelines on new loans. Loans that are coming due may also face this “equity call” so-to-speak, in order to shore up gaps in re-appraised value, to satisfy loan risk. New loans are available now for business owners with a proven record, who want to expand or relocate their company. The current SBA loan program presents an excellent long term loan, with no points, and up to twenty year loans. The owner’s company must occupy at least 50% of the asset and meet lending standards. In all cases the lender will want or may require that they be your business banker. Permanent debt is starting to come back and real deals are getting done at this point.

Local and regional banks are working through or working out their toxic loan debt one loan at a time, but a number of banks are not among those facing the toxic debt issue. Local banks, whose lending standards over time remained conservative applied typically stricter or less negotiable loan terms and thus today are the strongest banks in the U.S. For the lenders who either issued loans with aggressive terms or issues too many aggressive loans have been shut down by the FDIC, merged with another stronger lender or are daily working through these bad business decisions. For local banks who issued less aggressive loans and fewer of them, they now control the marketplace.

Bad debt still exists in the marketplace today and a slow workout will be the most likely solution. Calling all bad loans, in a market where there is increased scrutiny and pressure on new loans will not produce a logical outcome, so many lenders are choosing to work with borrowers. There remains a sizable amount of debt coming due in the next year or so. Where possible, performing loans are getting reworked or renewed. In most cases, banks do not want to foreclose if it can be avoided.

The bright side of the capital market meltdown and financial crash is that the markets are getting stronger. Banks with bad debt are mostly gone, new lending standards are in place, stable and profitable companies are starting to grow. Strong local banks that did not have an abundance of bad debt have been making good loans since mid 2009. There are even a few banks that are making land loans, and speculative development project loans. We are in one of the best markets in the country, and local banks have plenty of money to lend. Underwriting guidelines have tightened somewhat with healthy judgement being applied. The good news is that we are coming out of the paralysis that gripped the country all of last year.

Contact:
Larry Indermuehle
CEO
281.207.3701
lindermuehle@icotexas.com