Small Business Loans Are a Growing Problem

Posted on February 23, 2010 - Filed Under Finance & Investment |

Judging by numerous commercial financing measures, commercial lending is already a huge problem for most small businesses. Without government bailouts, commercial banking companies would have failed some time ago in many cases. Even though that outlook is bleak, this report will provide an even more negative analysis for working capital loans and commercial finance services. While we wish it were not the case, it is likely that business loans will be the next big problem for lenders.

For the past year, most banks and lenders have been subject to both disastrous operating results and negative publicity. Actual commercial lending activity reported by banks conflicts with the usual attempt by politicians and bankers to portray banks as normal and healthy. 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.

It seems that commercial financing is already the next big problem for many banks based on recent business banking statistics. In part this is due to the general decline in commercial real estate values during the past several years. This has resulted in some significant bankruptcies when many large commercial property owners were unable to either make their commercial mortgage payments or refinance debt (or both). 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. These difficulties were largely related to the rising number of home foreclosures which in turn caused a ripple effect involving various investments tied to home loans. The questionable bank investments became known as toxic assets after losing much of their value. When banks stopped making many loans (including small business financing), the federal government provided bailout funding to many banks to enable them to keep operating. While most observers would argue that the bailouts were made with the implicit understanding that bank lending would resume in some normal fashion, the banks seem to be hoarding these taxpayer-provided funds for a rainy day. By almost any objective standard, commercial lending activities have all but abandoned small business finance needs.

Much like the residential mortgage toxic assets caused banks to stop normal lending because of a shortage of capital, commercial banking losses on large commercial real estate loans are already causing many banks to stop or reduce their small business finance activities. The bank losses from large commercial property investors are producing a ripple effect that has caused commercial funding to effectively disappear until further notice. 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. This bad situation is made even worse when we learn that many banks are hoarding cash and approving fewer commercial loans to allow them to quickly pay bailout funds back to the federal government. 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 best ensure that they obtain adequate commercial loans for their business in the face of serious banking problems, a healthy amount of caution and skepticism is in order for commercial borrowers. Even if they do nothing else, business owners should have a straightforward conversation with a small business finance expert to assess how exposed their business might be to the brewing commercial banking problems. For many small businesses, the most objective business financing expert is not likely to be their current banker. If recent events are any indication, the banks themselves will not be very forthcoming about problems with their business lending practices.

As with many complex situations, one problem will lead to another. An increasing number of commercial loan defaults will be the most likely result of failure to obtain normal small business financing and working capital loans. To avoid such negative outcomes, prudent business owners should begin to take timely action now. The most serious business finance complications can be anticipated and avoided with appropriate action.Steve Bush is a reliable source of small business loans and is CEO of AEX Commercial Financing Group ( http://twitter.com/aexbushfour ). Stephen has offered effective advice to business owners for 30 years. He delivers business financing services and merchant cash advances throughout the U.S.

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