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Memo to entrepreneurs seeking a bank loan: Nail it down now. It's bad enough that the Federal Reserve
has raised rates another half-point and is expected to hike them again. Now comes word that bankers
are in the process of making it tougher to get a loan, period.
In its second-quarter survey of senior loan officers, the Fed found that 21% are tightening standards
for loans to smaller companies. That's the highest it has been since the beginning of 1991, when a
major credit crunch was taking shape. What's more, bankers say they have finally stopped cutting their
own profit margin, or "spread," on such loans, which has helped cushion the effect of previous Fed
rate hikes.
Granted, those margins are near their all-time lows -- 3.9 percentage points over the bank's own cost
of funds in the first quarter -- and rates on small loans as of April remain below their historical
average at 9.9%. But that won't last for long: A return to double-digit rates is all but certain.
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