Commercial Financing Perspectives

Commercial borrowers are likely to be involved for some time to come in searching for help in understanding business financing in a changing economy. Although for several decades banks have been a traditional source of small business loans, this role seems to be diminishing. A funding solution from banks is not routinely appearing for business finance needs that most owners currently have. Evaluation of their commercial finance needs and finding new sources for commercial financing and working capital loans has become an essential task for borrowers. This report provides a series of brief explanations about some of the most critical commercial lending issues likely to be confronted by small businesses.

"Small business owners should have a Plan B" is a reflection of the realistic possibility that something will go wrong with a current 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. It is strongly recommended that a variation of contingency planning also be adopted to help soften the blow if problems develop with existing business finance services. By engaging in this forward-looking approach to working capital management and business loans, businesses will frequently uncover financial improvements that they can make immediately.

"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. The relative ease of getting working capital has been replaced by a less predictable borrowing climate for any form of working capital funding that is not secured by assets, and it is important to expect this lending situation. A much longer list of underwriting requirements that can realistically make attempts to refinance either difficult or impossible has produced a visible influence on refinancing commercial real estate loans.

The unfortunate reality that bankers are just not what they used to be for most business finance situations is described by "banks are not the solution, they are the problem". It is rare for a week to go by without further negative news about the poor financial health of lending institutions. In one recent report, it was noted that there are now more problem banks (which are banks judged by the Federal Deposit Insurance Corporation as being more likely to fail) then anytime in the past eighteen years. 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.