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Small biz lending doing well despite credit crunch
NEEDHAM, Mass. (2/27/08)--Global commercial and small business lending balances increased dramatically in 2007, despite the credit crunch caused by the subprime mortgage lending, according to new research from TowerGroup. TowerGroup’s research report, “From Crunch to Squeeze: Global Impact on the Credit Crisis on Commercial and Small Business Lending,” is authored by Patricia Hines, a senior analyst in Tower Group’s Wholesale Banking practice. TowerGroup is a research and advisory services firm that focuses on the financial services industry.
Click image for complete chart Click image for complete chart
Continued business lending growth is expected for 2008, driven most notably by emerging economies and by lenders targeting small and medium enterprises or middle market firms, TowerGroup said. More credit unions nationwide are offering small business loans to members, according to the Credit Union National Association. About 35% of credit unions nationwide offer service to small businesses, which include loans. Overall, the U.S. subprime mortgage crisis has had limited impact on worldwide commercial and small business lending, with volumes and loans outstanding increasing across all loans (see chart). The ripple effect on commercial lending has a lag time of several months, and the U.S. mortgage crisis is still unfolding. While TowerGroup expects loan loss reserves and loan charge-offs to increase in 2008 among commercial lenders, they should remain at manageable levels, the firm said. For the commercial and small business lending sectors, the greatest impact of ongoing instability in the credit markets is likely to be a renewed focus on traditional underwriting practices and the “three Cs” of credit: character, capacity and collateral. To continue on the industry’s recent growth track, commercial lenders must get back to basics to focus on credit quality, loan covenant enforcement, risk-based pricing, and strong loan documentation across all loan types, the report said. Tower Group believes that loan underwriters also will spend more time on risk assessment, financial statement analysis and legal review in 2008.
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