Some small business borrowers are experiencing difficulty in obtaining or renewing credit to support their operations.
Although loans outstanding to small businesses and farms increased at institutions with total assets of less than $1 billion for the year ending June 30, 2009, this category of lending declined by almost $14 billion overall, with the decrease primarily occurring at banks with total assets over $100 billion.
This decline is attributable to a number of factors, including general trends in the economy, decreasing loan demand, and the emergence of credit problems.
Institutions' analyses of borrowers' cash flow should reflect expectations for the borrowers' performance over a reasonable range of future conditions, rather than overly optimistic or pessimistic cases.
Institutions should not use portfolio management models that rely primarily on general inputs, such as geographic location and industry, as a substitute for the evaluation of an individual customer's repayment capacity.
Examiners will take a balanced approach in assessing the adequacy of an institution's risk management practices and small business lending activities.
Examiners will not adversely classify loans solely due to a decline in the collateral value below the loan balance, provided the borrower has the willingness and ability to repay the loan according to reasonable terms.
This statement supplements existing guidance.
FDIC-Supervised Banks (Commercial and Savings)
Chief Executive Officer
Chief Lending Officer
Policy Statement on Prudent Commercial Real Estate Loan Workouts (FIL-61-2009)
Managing CRE Concentrations in a Challenging Environment (FIL-22-2008)
Interagency Statement on Meeting the Needs of Creditworthy Borrowers (FIL-128-2008)
Guidance on Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices (FIL-104-2006)
Interagency Statement on Meeting the Credit Needs of Creditworthy Small Business Borrowers - PDF (PDF Help)
Beverlea S. Gardner, Senior Examination Specialist, at BGardner@FDIC.gov or (202) 898 3640
FIL-5-2010 - PDF (PDF Help)
FDIC financial institution letters (FILs) may be accessed from the FDIC's Web site at www.fdic.gov/news/news/financial/2010/index.html.
To receive FILs electronically, please visit http://www.fdic.gov/about/subscriptions/fil.html.
Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275-3342 or 703-562-2200).