Financial Strategies

there are certainly conflicting reports, numerous financial observers have expressed concerns that the biggest commercial banks (those receiving government funds to help their troubled commercial financing operations) are not lending normally and acting as responsible corporate citizens. In financial publications such as the Working Capital Journal, there have been candid accounts that only a small number of commercial lenders appear to be acting as if “We’re all in this together”. This has resulted in two major problems for commercial borrowers: (1) The banks receiving bailout funds have failed (so far) to resume a normal lending pattern for commercial finance funding even though the funds have supposedly been provided to do just that. These same banks also seem to be unable to report to anyone how they are in fact spending billions of dollars. (2) Many banks are decreasing their commercial loans and commercial real estate loans by recalling outstanding loans or cancelling business lines of credit. There has already been much public backlash in reaction to inappropriate banking bonuses and spending. So far that has primarily taken the form of criticism and questions about how banks are allocating the financial resources largely subsidized by the taxpayers providing bailout funding. As it becomes more obvious that the action of many banks is impeding the recovery from economic chaos, it is likely that most business owners will choose to obtain their business finance funding from a lending source that has helped rather than hindered financial recovery efforts. As always, business owners cannot typically afford to wait for government and external action to resolve problems like those described above. Given the facts that many banks have exited or reduced commercial lending activities, business owners should attempt to find alternative sources for working capital loans and commercial loans. With appropriate help from a commercial financing expert, commercial borrowers will be able to identify which commercial lenders have been acting like responsible corporate citizens and business neighbors. It is unfortunately common to find that most bigger banks have eliminated new working capital financing and commercial mortgage loans. Although they are proving to somewhat difficult to identify and locate, there are commercial lenders actively making new commercial loans. In addition to the larger banks reducing most lending programs, another difficult commercial financing situation is that very few of the smaller local banks have resumed prior business loan activities. In many cases this means that a normally reliable and familiar source for working capital loans is no longer a viable business funding option. For the most part, local and regional banks simply do not have sufficient capital for new commercial loans. Many commercial borrowers will discover new financing choices such as business cash advance programs as well as alternative funding choices. Under most circumstances, business cash advances are provided by business lenders other than commercial banks. Such a working capital funding source might increasingly prove to be more reliable than traditional banks of any size in providing commercial financing effectively. By looking for lenders displaying an appropriate attitude of “We’re all in this together”, business owners should hopefully find that their business financing circumstances will improve.

Commercial financing has changed dramatically during the past few months. The net result has been a reduction in commercial lenders as well as stricter standards for acquiring commercial loans and commercial mortgages. Unfortunately there has also been no shortage of misinformation about the availability of commercial funding, so an important change issue is to realize that for commercial lending there are both apparent changes and real changes.

As is often the case with financial changes, it remains to be seen how many will be temporary or permanent. But from a practical perspective, commercial borrowers are left with no choice but to adapt to the changing commercial finance environment. Regardless of how long the changes might be kept in place, small business owners must be prepared to operate within a more complicated climate for commercial real estate loans and business financing.

Perhaps the most dramatic change has been a significant reduction in business lending activity overall. This has been due to several events occurring almost simultaneously. Several major commercial lenders have gone out of business altogether. Many banks have stopped business finance lending while continuing consumer lending. Numerous business lenders have enacted stricter standards for the commercial financing transactions they are still willing to consider.

What should commercial borrowers do about this? A primary option that business owners should explore involves looking beyond their local market area for help with commercial real estate financing and other commercial loans. To accomplish this, it should be helpful to contact a working capital financing expert operating throughout the United States.

In addition to fewer business lenders to choose from, there are two other significant changes which must be anticipated by small business owners before seeking new business financing. First, most lenders have cancelled or are about to eliminate unsecured lines of credit for many businesses. Second, commercial lenders are increasingly demanding more collateral for virtually all commercial finance funding.

One effective commercial financing strategy for overcoming the combined obstacles of fewer lenders, more collateral and fewer unsecured credit lines is to consider a business cash advance program based on future credit card processing activity. This is proving to be one of the few sources of commercial funding that has not been adversely impacted by recent events. To learn more, it will be advisable to discuss the potential with a small business financing expert who can provide advice about business cash advances as well as other business finance solutions.

Another key change issue for commercial mortgage loans and working capital loans is simply the likelihood that more changes will be forthcoming in the near future. It is increasingly obvious that many banks will continue to modify their business lending programs in response to changing conditions as they occur.

To adequately prepare for future commercial finance changes that might (or might not) occur is a daunting task for a business owner. A commercial financing expert familiar with Plan B contingency financing for commercial loans will prove to be a valuable resource for any borrower wanting to seriously deal with both current and future changes impacting the financial health of their business.

Traditional working capital financing is currently available from a shrinking group of commercial lenders. Small business owners should determine which commercial banks are still actually providing this specialized commercial finance funding. As described in The Working Capital Journal, the most active business lenders are generally not among the small number of larger banks which have received bailout financing from the federal government.

In most cases the active commercial lenders for this specialized form of commercial funding are limiting working capital loans to businesses which are current in their debt payments and are showing a net profit (based on recent financial statements). New commercial loans can often be finalized to refinance lines of credit and term loans which have been cancelled or recalled by many lenders if these two requirements are met. There are alternative funding possibilities such as business cash advance programs for businesses not qualified for commercial financing using these two standards.

Many small business owners also rely on personal lines of credit to finance some of their business operations. There have been many reports of widespread cancellations and reductions of these lending programs as well, especially those involving lenders which have received a multi-billion dollar cash infusion from U.S. taxpayer money that was intended to facilitate the lending of money to businesses and consumers.

Personal and business lines of credit have been eliminated in many cases by lenders due to a reduced ability to pay by borrowers and deteriorating business conditions. However, as described in The Working Capital Journal, many borrowers had an excellent payment history for a high percentage of recent credit line cancellations or reductions.

In spite of the challenging lending climate, there are banks which have been very effective in making working capital loans. The best examples are banks which have not received federal bailout assistance. These business lenders have continued to provide working capital financing, both refinancing lines of credit and term loans which have been recalled or cancelled by other lenders as well as new business financing.

Because it basically indicates that bailout funds have been given (so far) to lenders who primarily have a history of making bad loans (virtually all lenders receiving bailout funds to date), the lending activities described above are a serious concern to many observers. At this point, little attention has been given to lenders with a healthy balance sheet in federal attempts to get more funds into the hands of consumers and businesses.

Based on recent commercial lending activity, there are several notable conclusions. (1) Businesses need to increasingly prepare for life without relying on a traditional bank line of credit and instead consider other viable sources of commercial financing such as business cash advances (which provide working capital based upon future credit card processing activity). (2) The recent unwillingness by most lenders receiving bailout funds to report in any meaningful way how and where these funds have been used would certainly seem to be a loud and clear signal that these particular lenders are probably in worse shape than they are reporting to anyone. (3) Commercial lenders that have a history of making good loans rather than bad loans should be the focus of further government funding programs. (4) When business owners encounter difficulties obtaining commercial loans and working capital loans from normally dependable lenders, commercial borrowers should seek out commercial finance funding sources beyond their previous banking relationships.