Sarah Puil needs to buy $500,000 to $1 million of premium wine and other inventory by the end of the year to make into the specialty blends that her company sells and ships to customers around the country. But after the collapse of Silicon Valley Bank started a chain reaction that is causing many types of funding to dry up, she is not sure where she is going to get the cash.<\/p>\n
Boxt, her three-year-old purveyor of upscale boxed wine, is at a vulnerable stage in which access to credit is crucial to its growth and ability to keep producing its red, white and ros\u00e9 offerings.<\/p>\n
As banks and other investors retrench because of the turmoil, Ms. Puil and fellow entrepreneurs are finding that borrowing and raising money are more difficult and expensive.<\/p>\n
\u201cIt\u2019s all we\u2019re talking about,\u201d she said. The demise of the bank, a major lender to the tech and wine industries, \u201caccelerated the tightening of venture capital \u2014 that\u2019s the big thing,\u201d she said.<\/p>\n
Boxt\u2019s worries offer a hint of the economic fallout facing borrowers across the country as credit becomes harder to get. It is too soon to say how much the banking tumult could slow the economy, but early evidence points to increased caution among banks and investors.<\/p>\n
Taking out big mortgages is getting harder, industry experts report. The commercial real estate industry is bracing for trouble as the midsize banks that service it become more cautious and less willing to lend. Used car loans are more expensive. And a recent survey by the Federal Reserve Bank of Dallas showed a sizable share of banks in the region reporting stricter credit standards.<\/p>\n
The question now is whether banks and other lenders will pull back so much that the U.S. economy crashes into a severe recession. Until comprehensive data is released \u2014 a Federal Reserve survey of loan officers nationwide is due in early May \u2014 economists are parsing stories from small businesses, mortgage originators and construction firms to get a sense of the scale of the disruption. Interviews with more than a dozen experts across a variety of industries suggested that the effects are beginning to take hold and could intensify.<\/p>\n
\u201cPeople are for the first time in some time using the \u2018c\u2019 words: Credit crunch,\u201d said Anirban Basu, chief economist at Associated Builders and Contractors, a trade association. \u201cWhat I\u2019m hearing \u2014 and what I\u2019m beginning to hear from contractors \u2014 is that credit is beginning to tighten.\u201d<\/p>\n
Silicon Valley Bank\u2019s collapse on March 10 sent shock waves across the banking world: Signature Bank failed on March 12, First Republic required a $30 billion cash injection from other banks on March 16 and, in Europe, Credit Suisse was sold to its biggest rival in a hastily brokered deal on March 19.<\/p>\n
The situation seems to have stabilized, but depositors have continued to drain cash from bank accounts and put it into money market funds and other investments. Early Fed data on the banking system, released each Friday, has suggested that commercial and industrial lending and real estate lending both declined meaningfully through late March.<\/p>\n
When banks lose deposits, they lose a source of cheap funding. That can make them less willing and able to extend loans. The threat of future turmoil can also make banks more cautious.<\/p>\n
When lending becomes more difficult and expensive, fewer businesses expand, more projects fail and hiring slows \u2014 laying the groundwork for a broader economic slowdown.<\/p>\n
That sequence is why officials at the Fed believe the recent upheaval will cause at least some damage to the economy, though nobody is sure how much.<\/p>\n
Any slowdown will intensify conditions that were already getting tougher for borrowers. The Fed has been raising interest rates for the past year, making\u00a0money more expensive to borrow, and labor market data released on Friday offered the latest evidence that demand is beginning to slow enough to cool the economy, weighing on hiring and wage gains.<\/p>\n
Still, many Fed officials had come into March anticipating that they might lift rates a few more times in 2023 until inflation comes under control. Now, the banking fallout may restrain the economy enough to make further moves less urgent, or even unnecessary.<\/p>\n
\u201cIt is too soon to determine the extent of these effects and therefore too soon to tell how monetary policy should respond,\u201d Jerome H. Powell, the Fed chair, said at a news conference last month.<\/p>\n
Aftershocks are already surfacing. Commercial real estate borrowers rely heavily on midsize regional banks, which have been particularly hard-hit by the turbulence. Those banks were already become pickier as interest rate increases bit, said Stephen Buschbom, research director at Trepp, a commercial real estate research firm. Anecdotally, Silicon Valley Bank\u2019s blowup is making it worse.<\/p>\n
\u201cIt\u2019s not easy to get a loan commitment is the bottom line,\u201d Mr. Buschbom said.<\/p>\n
Tougher credit could bedevil a sector\u00a0that was already suffering: Office real estate has struggled in the pandemic as many city workers have eschewed their desks. Mr. Buschbom says he thinks many borrowers will struggle to renew their loans, forcing some into what\u2019s known as special servicing, where they pay interest but not principal. And as distress trickles through the industry, it could worsen the pain for midsize banks.<\/p>\n
The problems could mean less business for contractors like Brett McMahon, chief executive of the concrete construction firm Miller & Long based in Bethesda, Md.<\/p>\n
\u201cI don\u2019t think it\u2019s 2008, 2009 \u2014 that was such an extraordinarily severe event,\u201d Mr. McMahon said. But he thinks the bank blowups are going to intensify the tightening of credit. He\u2019s being cautious, trying to eke more time out of aging machines. He expects to pause hiring by the end of the year.<\/p>\n
\u201cMost contractors will tell you that 2023 looks decent,\u201d he said. \u201cBut 2024: Who the hell knows?\u201d<\/p>\n
When it comes to the residential real estate market, jumbo loans \u2014 those above about $700,000 or $1 million, depending on the market \u2014 were already becoming more expensive. Now, Michael Fratantoni, the chief economist at the Mortgage Bankers Association, has been hearing from bankers that deposit outflows in the wake of Silicon Valley Bank\u2019s demise mean banks have less room to create and hold such loans<\/p>\n
Ali Mafi, a Redfin real estate agent, has noticed big banks tightening their standards a bit for borrowers in San Francisco. It\u2019s nothing like the 2008 financial crisis, but over the past few weeks, they have begun asking that would-be borrowers keep a couple more months of mortgage payments in their bank accounts.<\/p>\n
Still, he hopes the fallout will not be extreme: Some mortgage rates have eased as investors anticipate fewer Fed rate moves, which is combining with higher stock prices and a drop in local house prices to counteract some of the banking issues.<\/p>\n
Auto loan interest rates have risen sharply, based on credit application data from March analyzed by Cox Automotive. Borrowing costs for used cars rose more than three-quarters of a percentage point in a month, said Jonathan Smoke, Cox\u2019s chief economist. New car loans also became more expensive, though not as significantly.<\/p>\n
\u201cThe auto market is going to have some challenges,\u201d Mr. Smoke said. But there\u2019s a silver lining: \u201cWe haven\u2019t seen appreciable declines in approval rates.\u201d<\/p>\n
There are also\u00a0reasons for hope in the wine industry. Winemakers have been on \u201ctenterhooks\u201d since Silicon Valley Bank\u2019s collapse, said Douglas MacKenzie, a partner at the consulting firm Kearney, partly because many big banks \u201cdon\u2019t know the difference between a $100 case of sauvignon and a $2,000 case\u201d when it comes to valuing collateral that can be \u201cquite liquid, no pun intended.\u201d<\/p>\n
But he noted that the Bank of Marin, a regional lender, has been running ads in trade magazines saying it is open to new customers. There is also interest in the private equity industry, with which he works.<\/p>\n
And Ms. Puil at Boxt is determined to get through the crunch.<\/p>\n
\u201cI\u2019m going to find that money,\u201d she said. Failing because of a lack of credit \u201ccan\u2019t be how this story ends.\u201d<\/p>\n