SBA Hot Topic Tuesday – Banks are Better Prepared for the Rise in Defaults & Delinquencies
June 6, 2023
Delaney Sexton
Contributing Editor
SBA Hot Topic Tuesday – Banks are Better Prepared for the Rise in Defaults & Delinquencies
Yesterday on Coleman Report Live!, the panelists talked about the current state of banking and what trends bankers are forecasting for bank loan portfolios. Here is what they had to say about commercial real estate and small business lending:
Small businesses that obtained loans at a time when interest rates were low are experiencing stress in making loan payments because of the interest rate increases, not due to any major change in the marketplace. For example, the prime rate was 3.25% from March 2020 to March 2022. Today, the prime rate has more than doubled and is currently at 8.25%. It is anticipated that loan delinquencies will rise after all the COVID stimulus, but the increase will be more gradual than it typically would.
Interest rates are also causing issues for commercial real estate for the same reason. Commercial real estate loans that were obtained when interest rates were low are now pressured by the dramatic interest rate hikes. There are differing opinions about the state of commercial real estate, but some people in the sector are expecting that there will be significant credit deterioration.
The panelists on Coleman Report Live! discussed how banks are in a position that allows them to be better prepared for the incoming bad loans in their portfolio. With CECL, banks have much higher reserves for losses than banks had in the past, so they are ready for potential problems.