How to tell if your bank is strong enough to weather the storm.
The failures and funding stoppages in the middle of projects seem to be primarily (but not exclusively) with the small-town banks or state-to-state syndicated banks. If you are currently working with a small, community-type bank and everything is going well, I recommend that you have a heart-to-heart with your banker to better understand why they are (or appear to be) so strong and can sidestep the pitfalls and FDIC takeovers that are happening all over the U.S. Here are some questions to ask:
- Can you tell me about your bank’s ability to continue servicing the development loans you currently have?
- Can you tell me about your bank’s ability to fund new development and home-building projects?
- Are you currently being regulated by the FDIC, OTC or any government entity?
- What percentage of your home loans are delinquent?
- What percentage of your home loans are foreclosures?
- How many REOs (real estate owned) are you trying to get off your balance sheet?
- Would you be able to fund a new project for me next month?
Even if the answers to these questions are positive, keep a close eye on your banker’s forehead for sweat, the edge of his lips for a downward curl, or his arms to see if they’re folded. If you see any of these signs, look for new financing.
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