An interesting LA times article today shows that small business lending has been trending upwards.  It is a bright spot on a negative news day about the economy.  Housing numbers for sales of existing homes plunged 30% after the expiration of federal tax credits.  Small business is seen as the key factor in driving up employment numbers as the economy is looking to the private sector for jobs.  The job market might take a hit after thousands of temporary census jobs being terminated.

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The recovery in the housing market has made some significant changes to the lending industry.  To avoid having the problems that cause so much destruction in the U.S. economy, the lending institution is becoming more diligent about who it lends money too.  Gone are the days in which to qualify for a loan you have to prove that you're alive. 

Lenders are asking more of the borrower to provide additional information that it may not have requested in the past.  For instance, lenders are now asking borrowers to verify every deposit to their checking account that is over a certain amount.  Also lenders are making it more difficult to qualify for their best rates.  Previously, borrowers who had a credit rating at about 700 would qualify for their best rates. Now to get the same rates, lenders require borrowers to have a credit rating of over 740.  This is fairly tough for most American's who have undergone previous foreclosures, missed payments, or other reasons that dropped their credit score. 

Lenders have also done a full credit check on borrowers just before closing.  This is intended to make sure that borrowers aren't extending themselves beyond what they can afford prior to getting loan approval.  Therefore to prevent a loan from falling through, experts recommend that you hold off opening any additional lines of credit before closing on your loan.  So don't apply for car loans, don't open credit cards, and avoid opening credit lines when purchasing appliances for the home.  Lenders will see the opening of credit lines as a concern and will have to ask for verification and additional question before proceeding on the loan.  This may result in a delay or a cancellation of the loan alltogether.

The additional requirements on borrowers may seem daunting, but overall it is best for all because it will prevent something like what we experienced from happening again.  Discouraging people from borrowing loans that they can't afford is the overall goal of the lending industry now.  We can all benefit from that.