Frequently Asked Questions For
Bank Business Loan Customers
In Turbulent Times
Answers to frequently asked questions from the Washington State Department of Financial Institutions (DFI).
Q. – I am looking for a commercial loan to help fund seasonal and unanticipated business operating expenses, and I hear that credit has become difficult to obtain during this economic downturn. Is credit difficult to obtain currently? Under present conditions, how should I approach a bank regarding my credit needs?
A – The nation’s present troubles in the financial sector have impacted the ability of some banks to rapidly grant credit. Right now, it is not as easy as it used to be for many borrowers to obtain credit. Federal regulations govern minimum capital levels based on a bank’s asset size. Many banks are closely watching their lending levels to ensure that their capital remains sufficient. However, there are still many banks that have the ability and interest to lend to commercial customers.
In the current environment, it may be necessary to contact several banks to research credit options. It is also likely that you will have to present a strong case regarding your company’s credit worthiness and business plan in order to obtain a loan. Accurate financial statements and tax returns should be readily available along with a clear business plan that outlines the purpose of the loan and your ability to repay it in a timely fashion.
Q – I have read that bank failures have hurt business borrowers and am not certain if my bank has problems. How would that impact my loan?
A – It is true that bank failures have become more common across the country and that several banks in Washington are under increased regulatory scrutiny. Our office has received information — and the media has reported — that some business borrowers have been adversely impacted by bank closures.
It is important that a business has a good relationship with its bank and that a business borrower has a clear understanding of his or her bank’s financial condition. If you are concerned about your bank’s condition, you should discuss this with your loan officer and your financial consultants and determine if your current loan structure would be negatively impacted should your bank’s situation become dire.
DFI does not publicly comment on an individual bank’s financial condition. You may wish to consult one or more of the private bank rating services that analyze a bank’s performance over time and assign ratings based on the perceived safety and soundness of the bank. A list of bank services may be found elsewhere on our website: http://www.dfi.wa.gov/banks/rating-services.htm.
You may wish to consider relationships with several banks to ensure that you have borrowing options available should your primary bank experience difficulties. It may also be wise to review your loan’s structure to ensure that your credit remains available, regardless of any circumstance faced by your bank. You should consider structuring your loan so it can not be called due by a receiver in the event of a bank closure. Consider a loan with a longer-term maturity with an allowance for prepayment if it is available.
Be prepared! Loans take time to underwrite and originate. The current economic environment is causing lenders to be cautious in their lending activities. If you feel that a new banking relationship is a prudent course, start the process immediately.
Finally, be aware that it is possible that loan terms may be less favorable than in prior years because of the current economic environment.
Q – I have verbal agreements with my bank on loans that differ from the written loan documents or are not formally agreed to in writing. Should I be concerned in the event my bank fails?
A – The Federal Deposit Insurance Corporation (FDIC) acts as receiver of banks that fail in Washington State. The receiver liquidates the assets and liabilities of the failed bank. By federal law, the FDIC can refuse to honor any verbal agreements (oral course of dealing) or understanding you have with a failed bank that differs from the actual loan documents or is not adequately agreed to in writing. If you want to preserve your rights as to any oral course of dealing or any informal agreement you have with your bank, you should consider negotiating a formal, written modification of your loan documents to reflect the actual agreement or understanding you have with your bank.
Q – My bank has closed. How do I pay my loan? Can I draw on my business credit line?
A – The FDIC has rules and procedures for loan customers of banks that have failed. In some cases, loans of failed banks are simply acquired by a new bank that the FDIC has approved to take over the failed bank. In that case, borrowers would be contacted by the new bank. However, if a failed bank’s loans are not acquired by a new bank, the FDIC will contact loan customers with alternative payment instructions and points of contact.