The search by commercial borrowers for help in understanding commercial financing is likely to be an ongoing activity for some time to come. Although for several decades banks have been a traditional source of small business loans, this role seems to be diminishing. Business owners are not easily finding a bank solution for their routine business finance needs. As a result, it has become essential for borrowers to both evaluate their commercial finance needs and find new sources for commercial financing and working capital funding. A series of brief explanations about several of the most critical commercial lending issues likely to be confronted by small businesses are summarized in this report.
“Small business owners should have a Plan B” is a reflection of the realistic possibility that something will go wrong with a current small business financing option, and business owners should do some advance planning to prepare for this. For their management operations, contingency planning has always been a worthwhile task for small businesses. To help soften the blow if problems develop with existing business finance services, it is strongly recommended that a variation of contingency planning also be adopted. Businesses will frequently uncover financial improvements that they can make immediately by engaging in this forward-looking approach to working capital management and commercial loans.
“It is necessary to have realistic expectations” is an essential perspective for small business owners to have in the problematic loan climate displayed by most commercial lenders serving small businesses. Gone are the days of buying a business with little or no down payment. Another situation to expect is the previous relative ease of getting working capital being replaced by a less predictable lending climate for any form of working capital financing that is not secured by tangible assets. Refinancing commercial real estate loans is now dependent on a much longer list of underwriting requirements that can realistically make attempts to refinance either difficult or impossible.
“Banks are not the solution, they are the problem” describes the unfortunate reality that bankers are just not what they used to be for most small business finance situations. Hardly a week passes without negative reports about the poor financial health of banks. It was recently noted that there are now more problem banks (banks rated by the Federal Deposit Insurance Corporation as being more likely to fail) then anytime during the past two decades. The number of these troubled banks has grown from 305 in early 2009 to a total of 775 at the end of March 2010. As a result, it is likely to become even more difficult for commercial borrowers to get water from a well that is running dry.
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