On the upside, capital markets are in much better shape than in recent years. Cash flush investors, REITS, pension funds, hedge funds, institutions, and private equity investors, are out shopping assets to acquire. As confidence increases, so does loan volume. Commercial property sales in the first two quarters of this year were up about 30% from a year earlier. Also, stronger real estate pricing has invigorated loan dispositions particularly by small banks. Banks are moving commercial loans off their balance sheets at a faster pace and at higher prices than at any time since the beginning of the financial crisis in 2008.
On the downside, time will tell on the degree of reduced and altered lending volume resulting from the Dodd-Frank Act. Many view this act as an overreaction to the recession that started in 2008 leading a significant number of investors to be less inclined to be as active as they normally would. For the majority of lending institutions, the Act burdens banks with cumbersome rules and compliance that leads to restrict overall economic growth. Many moderate to large banks are putting plans in place to deal with the Volcker Rule – prohibiting banks from owning, investing, or sponsoring hedge funds, private equity funds, or any proprietary trading operations for their own profit – to minimize their exposure to regulatory correction. The increased cost of compliance will have the long term effect of raising the cost of credit to borrowers and investors.
Over the past several years with the tightened credit markets SBA lending has increased. The SBA’s environmental policies have been adopted by many financial institutions for their own institutional environmental policies. This is true even for non-SBA lenders. As regulatory pressures have increased there have been enforcement actions against over 1,200 banks. The SBA is also stressing that as part of its environmental policies banks adopt their standard definition of a qualified environmental professional, as set forth in the USEPA All Appropriate Inquiries rule.
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