NAR Commercial Lending Survey Shows Lenders Obstructing Small Business

Loans

Economic recovery is here – but is it just for the biggest commercial real estate deals?  Are lenders failing — again — to support our industry by extending credit only to heavy hitters and leaving the rest behind?

That’s the finding of NAR Commercial’s latest Commercial Lending Survey.  Although commercial RE markets show signs of recovery, commercial lending standards have actually tightened in the past year for small businesses and “scuttled a major portion of contracted transactions for smaller properties”.

$2.5 Million Cutoff?

Lawrence Yun NAR chief economist, said there is a significant split in commercial lending  depending on value. “This is very much a tale of two markets. There have been notable improvements in capital for large commercial transactions  valued at $2.5 million or higher, but there remain significant  challenges for small business,” he said.

Lack of credit hitting our deals hard

Yun continued: “Our Realtor members typically are involved in helping commercial clients with purchases under $2 million, where a lack of capital has caused two out of three respondents to report deals have fallen through.  Given that most jobs are created through small business, the lack of  capital is hurting small businesses and the overall economic recovery.”

According to Real Capital Analytics, more than 13,000 major properties valued at $2.5 million or higher traded hands in 2011. Sales volume  increased 51 percent over 2010 to $205.8 billion, with the lion’s share  of lending funds coming from big banks. Other funding sources include  insurance companies and institutional investors.

By contrast, the NAR survey shows that small business transactions rely heavily on smaller regional and local banks, and small private investors, for lending capital.

Respondents indicate nearly 30 percent of smaller commercial properties are purchased with cash, reflecting the tight credit environment, and  some are seller financed. “When credit is tight, cash is king,” Yun added.

Backlog impeding the wider market

NAR members say the market is clogged with property that needs to be sold or refinanced. Financing for long-time investors who had no trouble before is being turned down routinely by lenders, with 23% of respondents reporting lending standards are more stringent and more than half of survey respondents claiming lending is just as stringent but not near historical averages.

The big question

With big lenders’ fingerprints all over the economic collapse of 2007, with their enormous bailouts afterward and now, mounting evidence that they are applying the brakes to a wider commercial recovery now, one has to ask of some of our pinstriped friends: with friends like this, who needs enemies?

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2 Comments

  • busiloan

    May 27, 2012

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  • Alan Goss

    June 6, 2012

    Stillwater National Bank will finance smaller properties in Texas, Oklahoma and Kansas. Contact Alan Goss at 210-442-6135 for more information.

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