Does Your Bank Seem Different These Days?

Many operating companies and real estate investment enterprises have seen a shift in the credit appetite among banks, especially among regional banks, since the collapse of Silicon Valley Bank and Signature Bank in March 2023.? However, the problem with banks’ extension of credit relative to the robust pre-COVID period, stems more from banks’ own deposit levels, than it does from issues regarding borrowers themselves.? If you are a C-suite member of any enterprise, you may have already felt a change in the tone of your banking relationship due to no fault of your own.

Many borrowers of, for example, Silicon Valley Bank, especially borrowers in the technology space, had been able to establish bank credit with the proviso that they also hold their deposits with SVB.? This requirement is fairly common in banking, however, at SVB and other tech lending banks, many of these depository relationships exceeded $10MM, $20MM, $30MM or more, with only a fraction of that exposure on the credit side.

The problem is that FDIC insurance only insures up to a fraction of that level.? And while the Fed stepped in (this time) and guaranteed depositors a safety net for their deposits up to the full value (to avoid another run on the bank), the presence of excess deposits throughout the regional banking system, caused a “spreading out” of deposit concentrations in the aftermath, moving cash from community & regional banks into the big banks.??

Since the regional banking system’s loan balances did not change materially, that deposit movement caused upward pressure on many regional banks’ “loan-to-deposits” (LTD) ratios.? In fact, the average bank’s LTD ratio has increased more than 10% year-over-year since this time last year, according to the Federal Reserve Board website.? This is why it has become much more difficult for borrowers to receive credit approval on new bank loans, and also why borrowers who have tripped a covenant are finding themselves looking for a new lender much sooner than they would have been prior to these events of last year.

Kaldes Financial specializes in finding alternative financing sources when bank financing is not possible, or when it’s just not desirable.? Believe it or not, as of 2020 over 65% of all domestic credit was issued outside the banking system, and this percentage is climbing, thanks to these events, as well as higher interest rates.

If you would like to discuss the possibility of shifting your bank borrowings to a much more flexible (but not much more expensive) alternative financing relationship , please reach out to me at [email protected] .

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A note about the author:

Kevin Pearce is a 30-year veteran of the commercial finance industry, a past board member for the Association for Corporate Growth (ACG), and sitting President of the Arizona Chapter of the Turnaround Management Association (TMA).? Kevin is also a Certified Management Accountant and Certified Financial Manager, and is the founder and CEO of Kaldes Financial, a boutique debt placement advisory firm.? Kaldes specializes in alternative financing solutions for special situations, unique borrowers, and for those companies in transition.