Working Capital Financing Is A Growing Problem

By Author: Stephen Bush
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Based on a number of small business financing statistics, commercial lending to small businesses is already on life support. Without government bailouts, commercial banking companies would have failed some time ago in many cases. As bad as that perspective might sound, this report will provide an even more negative outlook for the future of commercial finance and working capital financing programs. While we wish it were not the case, it is likely that commercial loans will be the next big problem for lenders.

For at least a year, banks have been experiencing both negative operating results and poor publicity. While both politicians and bankers would like to portray banks as healthy, the business lending practices displayed by most banks tell a different story. Most bank financial results have been disappointing after working hard to solve massive residential loan problems. Based on what has been seen and reported, it is reasonable to wonder if commercial lending has more big problems lurking in the wings.

Small business financing appears to already look like the next big problem based on commercial finance statistics ...
... recently released by many banks. The general decline in commercial real estate values during the past several years is a major factor in this conclusion. Because many large commercial real estate owners could not make their commercial mortgage loan payments or refinance business debt, this has resulted in some significant bankruptcies. The resulting bank losses are clearly having an impact now on commercial lending to small business owners even though these difficulties were primarily happening with large real estate owners and did not usually involve small businesses.

Several banking problems have resulted in significant negative publicity during the past year. The largely avoidable difficulties were primarily tied to increasing home foreclosures which in turn caused various investments tied to home loans to decrease in value. The questionable bank investments became known as toxic assets after losing much of their value. The federal government provided bailouts to many banks to help them to keep operating when banks stopped making many loans that included small business financing. The banks have seemingly been hoarding these taxpayer-provided funds while most would argue that the bailouts were made with a specific understanding that normal lending would resume after receiving the funds. Commercial lending activities have all but abandoned small business finance needs by almost any objective standard.

Bank losses on large commercial real estate loans have caused many banks to reduce or stop their commercial financing activities, and this has clear similarities to the earlier situation of residential mortgage loan toxic assets causing banks to stop normal lending because of capital shortages. A ripple effect from the large commercial real estate losses has resulted in the effective disappearance of commercial funding. While small business owners did not cause this problem, they are suffering the immediate consequences when banks are unable or unwilling to provide normal levels of commercial financing to them. To make matters worse, many banks are approving fewer business loans and hoarding cash to enable them to repay federal bailout funds more swiftly. The only apparent rationale for the hoarding strategy is that it allows banks to resume executive bonuses and compensation that are not permitted until bailout funds have been repaid in full.

To increase the chances that they receive sufficient business loans in the face of ongoing lending problems, a healthy amount of skepticism and caution will be helpful for business owners. Small business owners should have a candid conversation with a business finance expert to evaluate if their business might be exposed to the developing commercial banking difficulties. For many small businesses, the most objective commercial financing expert is not likely to be their current banker. Unfortunately we have already seen that the banks themselves are not likely to be forthcoming in a candid way about business banking problems.

Unfortunately one problem will lead to another, as is common with complex circumstances. An increasing number of commercial loan defaults will be the most likely result of failure to obtain normal commercial financing and working capital loans. Prudent business owners should begin to take action now in a timely manner to avoid such negative outcomes. The most serious commercial finance problems can be anticipated and avoided with appropriate action.
About Author:
Stephen Bush is a dependable source of commercial mortgages and is CEO of AEX Commercial Financing Group ( http://aexcfgllc.com ). Steve has offered practical advice to business owners for 30 years. He furnishes business financing services and working capital throughout the U.S.