Many small business owners rely on their homes or business real estate to secure their business loans. As collateral values have declined, their borrowing capacity has been reduced. Finally, small business lending often is based on relationships that are solidified over time.
Sometimes those relationships are broken as a result of the bank’s inability to lend, such as when the bank fails or when it reduces lending because of strains on or concentrations in its own portfolio. Small businesses may then find it quite difficult to establish similar arrangements with a new bank.