Credit Terms Expectations Going Forward
It might be tempting to plan to rely on emergency programs such as the PPP and other funds to move forward, however capital availability going forward will most likely resemble past trends and you should be prepared for it.
During normal business contractions, banks tend to lower their exposure to new loans either by denying additional loans, exiting categories, or by simply trying to improve the quality of borrowers to whom they extend credit. This has normally meant bad news to minorities and disadvantage groups since the amount of credit available is restricted when most needed. As we can appreciate from the below chart commercial and industrial loans have been restricted the most during periods of economic contraction as shown in the shaded area. Logic tells that the after pandemic period will be very similar to past trends or at least we should assume it will be.
The period during the pandemic has been characterized by a very abnormal expansion in deposits as people saved more during 2020 and expanded monetary policy increased the amount of money available.
At the same time during this time the amount of commercial loans that banks have extended to customers has sharply declined, most likely impacted by the amount of public funds that have been diverted towards helping businesses survive the pandemic.
Going forward this means that bank have more deposits than normal and less outstanding loans than normal, making future availability of credit more likely. However, banks will most likely flee towards better quality borrowers and move away from lending to minorities and disadvanged groups despite of the availability of credit.
For Hispanics this scenario results in a very simple outcome; you need look like a more attractive borrower and this starts by having strong accounting records, a close relationship with your banker and always look for the best sources of finance.