U.S. bank credit expanding at the fastest clip since financial crisis

Federal Reserve data indicates that U.S. bank credit is expanding at the the fastest rate since before the collapse of Lehman Brothers helped to trigger the global financial crisis. Although this improvement denotes progress, the credit market well below the level it reached before the recession began. Owners of commercial property can utilize 1031 to lower their costs to cope with these adverse lending conditions.

Lending institutions grew the number of industrial and commercial loans issued by an annualized pace that neared 10 percent in 3Q11, which is the highest level since the same quarter in 2008, according to Bloomberg. This strong upswing contrasts with a 1.7 drop that has occurred in the last four years. The latest Fed data indicates loan expansion that totaled 15 percent in October and 6.1 percent in November.

A statement released by Bobsguide indicates that total bank credit rose 3.9 percent during the period, and this increase was accompanied by a rise in securities bank credit of 1.7 percent during the quarter. This will be the first time in 2011 that these figures were not either displaying anemic growth or declining.

Accompanying this positive data is news from the National Federation of Independent Business that loan availability surged by more than 25 percent between March 2010 and October 2011, according to the media outlet.

The lending requirements of banks are easing in 2011 after stress tests conducted by the Fed in 2009 caused the financial institutions to bolster their capital reserves, the media outlet reports. Banks have also been reducing the losses incurred as a result of the housing crisis and ensuing recession.

Robert McTeer, former president of the Federal Reserve Bank of Dallas, told the media outlet his prediction that the central bank's policy group will not vote to implement new monetary easing measures at its meeting on December 13.

"The bank-credit statistics argue that more stimulus isn’t needed," McTeer, a distinguished fellow at the Dallas-based National Center for Policy Analysis, told the media outlet. The Fed considers loan data an "important” indicator reinforcing its forecast for growth to accelerate, so the trend “is very encouraging."

Even though recent data indicates that the market for commercial lending has improved slightly, it has a long ways to go. A business can make the process of purchasing replacement property easier by participating in 1031 exchanges and therefore realizing cost benefits.

The major benefit of setting up one of these exchanges with a qualified intermediary such as Strategic Property Exchanges, LLC is deferral of taxation. As long as one building is sold and another is purchased in a way that qualifies as a like-kind exchange, the owner can defer taxation on the property sold.

Keeping all the equity that was held in the original building would require the individual to utilize less debt when purchasing the replacement property. Lowering the debt requirement would make it easier for the business to purchase the new building in the current lending environment.

Also, this debt reduction would impact the company's bottom line. This decrease would result in a reduction in both interest costs and debt payments. Reducing debt payments is especially helpful, as they are paid out of operating income, which can be taxed at rates as high as 40 percent.

A business that needs its commercial property to conduct business could engage in a reverse 1031 exchange, which would permit it to purchase the replacement building and then sell the original property later.