Article DetailsWorking Capital Financing Is a Growing Problem |
| Date Added: February 16, 2010 05:00:00 PM |
| Author: Stephen Bush |
| Category: Business: Small Business |
| Based on a number of business financing statistics, commercial lending to small businesses is already on life support. Without government bailouts many commercial banks would have already failed. As bad as that outlook is, this analysis will describe an even more negative perspective for small business finance and working capital loans options. Overall it currently appears that commercial loans represent the next big problem for banks and other lenders.
Banks and other lenders have experienced both poor operating results and negative publicity for the past year or more. While both politicians and bankers would like to portray banks as healthy, the commercial banking practices displayed by most banks tell a different story. The financial results have been questionable after banks have worked hard to solve their massive problems involving residential loans. Now it is only reasonable to determine if more big problems are lurking in the wings for commercial banking. Small business financing appears to already look like the next big problem based on commercial finance statistics recently released by many banks. 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). While these difficulties were predominantly happening with large real estate companies and did not regularly involve small businesses, the resulting bank losses are clearly having an impact now on commercial lending to small business owners. During the past year or so, several banking problems have received significant publicity. 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. Such investments lost value so rapidly that they became known as toxic assets. 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. Commercial lending activities have all but abandoned small business finance needs by almost any objective standard. 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. Small business owners are being penalized when banks are unable or unwilling to provide normal levels of commercial finance funding to them because of losses involving larger commercial property companies. 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 primary logic for this approach is that it will allow banks to resume excessive bonuses and compensation to their executives. To best ensure that they obtain adequate small business 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 business finance expert to assess how exposed their business might be to the brewing commercial banking problems. For many small businesses, the most objective commercial 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. 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. Prudent business owners should begin to take action now in a timely manner to avoid such negative outcomes. The most serious commercial finance complications can be anticipated and avoided with appropriate action. |
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