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Will banks be cautious in 2019? Small businesses thinking of getting loans may want to act now

By January 17, 2019No Comments

(This post originally appeared on

If you want more evidence of how strong the economy is, then here’s proof: there were no bank failures in 2018, according to the Federal Deposit Insurance Corporation, or FDIC. That’s a first since 2006, and only the third time since FDIC’s founding in 1933.

“The Great Recession/housing bust/financial crisis related failures are behind us,” writes economist and blogger Bill McBride of Calculated Risk.

It’s not just the strong economy that’s being credited. Recent tax reform and legislation introduced after the 2009 recession have helped to improve the safety of the banking system while still leaving room for the industry to grow.

Even with the stock market volatility, banks continue to be in a strong financial position. “Frankly, recent market movements have not given us any reason to be concerned,” Federal Deposit Insurance Corporation Chairman Jelena McWilliams told Reuters earlier this month. “Actually, [banks] are superbly well capitalized at this point in time.”

Regardless of the industry’s financial strength, McWilliams did say that the regulatory agency had begun a review of the rating system used to evaluate the health of the banking system – just in case.

But few, for the time being, are expecting to see any red flags. Still, given the economic uncertainty and market volatility, small businesses looking for loans may want to act sooner than later.

The banking sector reported a record $62.9 billion in profits last quarter, an increase of more than 29 percent from the same period a year ago the FDIC reported. Banks will begin reporting their fourth quarter profits this week and many analysts are expecting to see another strong quarter with accelerating loan growth and a stable credit environment. Among the largest banks locally, Wells Fargo and JP Morgan Chase release their earningson Tuesday, Bank of America and PNC Financial Services on Wednesday and Citizens Financial Holdings will report on Friday.

All of this has had a big impact on small business lending.

Although the federal shutdown has temporarily halted loans issued with Small Business Administration guarantees, the market for small business loans has been busy. According to a recent study by financing consultants and brokers Biz2Credit, loan approvals for small businesses looking for financing at big banks (those having assets with more than $10 billion) reached a post-recession high mark in November and December.

But small businesses looking for financing in 2019 may still need to be careful. Although some reports, like Deloitte’s recent 2019 Banking Industry Outlook believe that the strong economy, a favorable regulatory climate and technological advances will strengthen this coming year, others are a bit more wary. While not exactly red flags, there are some potential challenges for companies looking to raise capital on the horizon.

Continued volatility in the markets could have an impact on the number of financing transactions as well as a potential downturn in the economy. Increased scrutiny by the House Finance Committee, which is under new Democratic control led by Rep. Maxine Walters — a frequent critic of the industry — could also pose additional regulatory hurdles.

“We predict that with the change in House leadership, the lessening impact of tax reform, the potential for rising interest rates and a slow cooling-off of prior robust economic growth, access to the capital markets will be more tepid in 2019,” writes attorneys Craig Miller and Barbara Polsky, both who specialize in financial services transactions. “Banks will continue to be cautious about their capital resources.”

The message is clear to small business owners: credit could very well tighten in 2019. If you’re thinking of getting financing – and your books are in order – now may be the best time to act.

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