Industry feels the squeeze as underwriting standards remain tight

Jenni Chase
January 7, 2010

Tight lending standards have the industry in a chokehold, as builders and developers, business owners, and consumers struggle to secure the financing necessary to bankroll construction projects, invest in personnel and equipment, and purchase or remodel homes. In the near term, the commercial building sector is facing a particularly tough financial climate, say officials at McGraw-Hill Construction, New York. Government intervention in the commercial mortgage-backed securities market might help to alleviate stringent lending conditions, but credit availability will nevertheless remain considerably tighter than at mid-decade, according to the Closer Look article in this issue.

Case in point: “At a tradeshow we attended, I was talking to a hotel owner/developer, who relayed the following story,” says Adam Verstraete, sales manager, WinTech, a Monett, Mo., commercial window manufacturer serving the hospitality and metal building industries. “He was an established businessman with three existing hotels. He had the land and business plan for his fourth property but after visits to 12 banks, he had not been able to secure the financing to build the hotel. I get the same type of story from my metal building customers. I truly believe that while a return to bad credit practices is to be avoided, the government and banks need to loosen up the money, or we will all remain in this rut.”

It’s the banks, not the number of jobs coming in, that’s the problem, echoes Charlotte Broussard, owner and CEO, Universal Window and Door LLC, Marlborough, Mass. “[In 2009], we quoted more projects than we did in the last three years, with continual value engineering. After the engineering, unfortunately many banks [were] not funding the projects,” she says.

Underwriting standards remain tight, according to the Federal Reserve Board’s most recent Senior Loan Officer Opinion Survey on Bank Lending Practices, released Nov. 9, 2009, at In the October 2009 survey of 80 banks, more than 80 percent of domestic banks and 90 percent of foreign branches reported their standards for commercial and industrial loans remained basically unchanged. Not one domestic bank had eased its standards for C&I loans, compared to just 8.7 percent of foreign branches. Fifteen percent of domestic banks reported tightening standards for C&I loans, citing reduced tolerance for risk, an economic outlook that was less favorable or more uncertain, and a worsening of industry-specific problems.

The results were grimmer for commercial real estate loans. About 34 percent of domestic banks reported tightening standards for CRE loans, compared to 20 percent of foreign agencies. Sixty-six percent of domestic banks and 80 percent of foreign institutions said standards remained unchanged.

In regards to consumer lending, about 25 percent of banks, on net, reported they had tightened standards on prime residential real estate loans, according to the survey. Between 30 percent and 40 percent of banks continued to report tightening various terms and conditions on credit card loans, it stated.

The good news
While the overwhelming majority of banks aren’t easing their lending standards, the good news is most banks aren’t tightening standards either. That number continues to decline from the 80 percent peak reached in late 2008, according to the survey.

Help for small businesses might also be on the horizon. At press time, the Obama administration was considering spinning off a new entity from the Troubled Assets Relief Program that would give banks access to federal funds without restrictions, as long as the money was used to support loans to small businesses, according to a Dec. 11 article in The Washington Post. 

"The president asked Treasury and [the Small Business Administration] to look hard at how the TARP program could be deployed to help creditworthy small businesses who are not getting the financing they need to grow and create jobs," said Gene Sperling, a counselor to Treasury Secretary Timothy Geithner, in The Washington Post article. "Treasury and SBA are taking that assignment very seriously and working hard to see what would be most feasible and effective."

Credit will be instrumental for us to move forward, says Ed Sieber, president, Glass Doctor of Charlotte, N.C. “We’re going to need the capital to buy vans [and] equipment for when we do grow,” he says. “Dina Dwyer, CEO, Glass Doctor, was on Capitol Hill speaking before Congress to help free up credit for small businesses. If they can make some headway and free up some of the credit, it will enable us to hire people back.”

“The future of our economy is dependent on banks’ willingness to loan money to businesses,” says BJ Katz, founder and director, Meltdown Glass Art & Design, Chandler, Ariz. “Small businesses are the backbone of the U.S. economy.  Unless and until banks change their lending practices, the future looks bleak for large numbers of small businesses and working people.”

For additional reporting on the state of the current credit market as it unfolds, visit To share your recent experiences with bank lending practices, please e-mail me at A look at the commercial real estate loan market will follow in the upcoming February issue.

Jenni Chase is editorial director of Glass Magazine, e-glass weekly and Write her at