A Return To Rigidity? A Look At Commercial Lending Post-Pandemic

Since the beginning of the coronavirus pandemic, commercial lenders have been more willing than ever before to give borrowers some grace when they fall on hard times. But that willingness to be flexible is decreasing by the day. 

The Hanson & Payne team is working with commercial lenders and borrowers in the Milwaukee area as they try to navigate the shifting financial landscape. 

FDIC Encourages Flexibility A Return To Rigidity? A Look At Commercial Lending Post-Pandemic 

One of the big reasons banks have been so willing to work with borrowers over the past two years is because the FDIC told them to. 

As the FDIC says on its website:

Just days after the World Health Organization formally declared a global pandemic, we issued a statement acknowledging that this unique and evolving situation could pose significant temporary business disruptions and challenges, and encouraging financial institutions to work with customers and communities affected by COVID-19. Specifically, we stated that an institution’s prudent efforts to modify the terms on existing loans for affected customers would not be subject to examiner criticism. We committed to working with affected financial institutions to reduce the burden when scheduling examinations, including making greater use of off-site reviews, consistent with applicable legal and regulatory requirements.

We have encouraged banks to work with all borrowers, especially those from industry sectors particularly vulnerable to economic volatility. We have clarified that prudent efforts to modify the terms on existing loans for affected customers will not be subject to examiner criticism and that certain loan modifications made in response to COVID-19 are not troubled debt restructurings (TDRs). We have also provided flexibility to enable mortgage servicers to work with struggling consumers and to allow for delayed receipt of required appraisals for certain residential and commercial real estate loans.

These are just a summary of the specific directives released by the FDIC, but it is clear that banks were supposed to be much more flexible than usual. 

And they were. Over the past two years, Hanson & Payne has worked with banks and borrowers to renegotiate or restructure a lot of debt and make sure everyone’s interests are protected when new documents memorializing these agreements are drafted. 

What Comes Next? 

The big question everyone is asking now is what comes next? Pandemic guidance is going to go away at some point. However, in the face of inflation, banks may want to continue being flexible in order to attract borrowers. 

On the other hand, banks can’t be too generous lest their portfolios appear rosier than they actually are. This could destabilize the financial system more than the pandemic and the uptick in inflation already have. 

Milwaukee Area Bankruptcy Attorneys You Can Trust

Come what may, the Hanson & Payne team is always ready to assist Milwaukee area borrowers and lenders. Our experienced team of attorneys can assist with restructuring and workouts, or help guide our clients through the bankruptcy process. Please contact us today to schedule an initial consultation.