Higher Interest Rates Signal Borrowing Headaches for Businesses says Borrower's Rights Attorney

If interest rates continue to climb, it will prompt lenders to tighten lending policies, spelling bad news for business borrowers," says A. Barry Cappello, one of the nations pioneers in lender liability law. The result, says Cappello, is more foreclosures, business failures and lender liability litigation.

SANTA BARBARA, CA (PRWEB) October 1, 2004 -- If interest rates continue to climb, it will prompt lenders to tighten lending policies, spelling bad news for business borrowers," says A. Barry Cappello, one of the nations pioneers in lender liability law. The result, says Cappello, is more foreclosures, business failures and lender liability litigation.

Throughout the last two decades, a distinct and predictable pattern has developed," says Cappello, partner in the Santa Barbara, California law firm of Cappello & Noël, LLP. When interest rates rise, even by less than one percent, money tightens. This prompts some lenders to become overly aggressive in monitoring business borrowers, especially those with marginally performing loans (as happened in the late 1980s and again in the later part of the 1990s). These businesses will find some nervous lenders suddenly demanding more collateral, cutting lines of credit and sometimes even requiring to be part of the decision-making process of a business as a condition to continue the lending relationship," says Cappello. Legal issues arise when lenders, in their zeal to protect their investment, renege on previous loan commitments and trample the borrowing rights of the business."

Previously, lenders stopped lending money to certain industries they judged too risky. Manufacturing, real estate and agriculture took the biggest hits in the 1980s and 1990s. Cappello foresees technology, large housing developments and transportation as being affected now by tougher lending practices.

Businesses must understand that the money pipeline will not always be full," notes Cappello. They need to make contingency plans that include less 'easy money from lenders. While lenders must do a better job scrutinizing businesses before making loans in a higher interest rate climate, banks must understand they must honor previous loan commitments or else face possible legal action."

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