Our national and world wide economic downturn has led to an incredible decline in the value and marketability of real estate, tangible assets, securities and intangible assets. As a result, individuals and businesses are seeking ways to shore up their existing credit as well as obtain additional credit. Yet, in spite of the hyperbole in the media, banks are still in the business of lending money and opportunities still exist for those willing to look.

Over the past 18 months most parts of the country have seen real estate and other asset values decline by as much as 50 percent. In simple terms, properties that were previously $600,000 are now estimated to be worth roughly $300,000. Property holders are now experiencing no or negative equity and no ability to leverage the value of their real estate. In fact, many individuals and businesses are making payments on property that is now worth far less than the original purchase price. This raises a frightening question: What will that do to the opportunity to obtain additional credit?

Given the current environment, the outlook for obtaining new or additional financing seems fairly ominous. Banks are finding that they are spending more time working with existing borrowers who are having trouble making their payments than with new borrowers that meet the established criteria for lending and want to start a new project, buy a new home or purchase additional assets to grow their business.

Financial institutions lend money based on five key criteria — called the five C’s of credit. Obtaining financing will most assuredly require proof of meeting them. They are:

■ Credit (existing debt) — Have existing payments been made?

■ Capacity (ability to pay) — Is there other means of making the payments?

■ Character (assessment of credibility) — Have affairs been handled in an honest manner?

■ Capital (current financial strength) — Are there current or other sources of equity?

■ Collateral (the last line of defense) —What is the value of the property?

Credit is available for those who can proof their credit-worthiness and the lower values of real property and other assets have created an opportunity for those individuals. Real estate and other asset inventory are extremely high. For those  who do have the means and wherewithal to make those purchases, virtually  unlimited opportunities exist. For those businesses and individuals who have managed to keep their credit intact, banks are willing to lend.

This also serves as an important backdrop regarding the opportunity to obtain financing in today’s marketplace. So how can you work this to your advantage? Banks are looking for borrowers with strong balance sheets and the ability to pay their current and future obligations. The best way to take advantage of the current market is to discuss your needs with your banker. And don’t forget the Small Business Administration. It can be an excellent resource.

Looking ahead over the next one to two years, the need for financing on the part of individuals and businesses will most likely outpace the ability to obtain the required amounts of credit needed. The capacity to refinance and take advantage of lower interest rates will also be difficult unless further support — by way of additional collateral — can be provided. Additional collateral can come in many forms depending on how much risk a borrower is willing to take. Pledging a 401K or other retirement accounts, savings accounts or hard assets (cars, boats and real estate) are all options, albeit risky.

The impact that declining asset values have on the opportunity to obtain financing falls into two categories: those with existing mortgages who will continue to find it difficult to refinance or buy down an existing loan and those with ready capital and the ability to leverage who will have a very broad landscape to work from — if they see a risk/reward opportunity. For everyone involved, a stabilization of the economy and rebirth of the housing and commercial markets will be welcome sight.

Brett Nesbit, CPA, MBA, MSA, is a managing principal with Rehmann. He is located in the Naples, Florida office. He assists individuals and closely held businesses with a variety of tax planning and tax compliance services. Contact Brett at 239.254.5057 or by emailing This e-mail address is being protected from spambots. You need JavaScript enabled to view it .