Word: loaned
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Dates: during 1990-1999
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Susan Karlin suffered a similar fate. The graphic designer, who has managed a profitable studio in Manhattan for seven years, needed more computers and a larger staff to accommodate her growing clientele. When she applied for a $100,000 loan at a large bank, she even agreed to put up $200,000 worth of personal property as collateral. She had no previous history of credit problems. A week later, a lending officer called her with the bad news: "We don't feel comfortable with it." Karlin was upset. "I gave them all the documentation they asked for," she said. "Still...
...persistent credit crunch has its roots in the go-go lending years of the 1980s, when banks and savings and loan associations issued an extravaganza of careless loans to real-estate sharks and corporate raiders, oil drillers and developing countries. "All you had to do to get a loan in the 1980s was have a pulse," says Jon Goodman, vice chairman of California United Bank. The resulting avalanche of bad loans forced the U.S. to allocate nearly $100 billion to bail out the S&Ls and set aside a $70 billion credit line for cleaning up the banks. To prevent...
...credit crunch has hit some regions particularly hard, notably the Northeast and the West. California's 460 banks took a bad hit when property values nose-dived. Nearly 60% of the bank loans in the state were backed by real estate, in contrast to an average of 46% for the U.S. "No one is even going to a bank here because they know how hard it is to get a loan," says Goldinger. "The loan demand is there, but people are so tired of being turned down...
...regulations have forced banks to be highly conservative in judging loans. Lending officers are required to carry out far more documentation, a costly and time-consuming process. They now routinely want business borrowers to provide personal guarantees, sometimes even with their homes as collateral. And if the value of that collateral falls below the outstanding balance of the loan, then bankers may have to classify the debt as being in default -- even though the borrower may have been faithfully making payments...
Lenders have also witnessed the spectacle of seeing S&L executives thrown into jail. This has heightened the fear among bankers and board directors, as well as among their accountants and attorneys, that they could face criminal liability if a loan goes bad and imperils the bank. "There is a real fear among lenders," says Lawrence Hunter, chief economist of the U.S. Chamber of Commerce, "that a bad business decision in this day and age stands the risk of becoming criminal activity...