The “simpler is better” perspective used in this article reflects a belief that a more concise explanation about commercial loan problems and the resulting impact on their business financing options might produce the biggest benefit for small business owners after hearing an almost endless number of reports about commercial lending difficulties. In several other commercial finance reports such as “seven words to describe commercial mortgage loans”, we employed a similar strategy. This article was produced in a direct effort to provide more understandable insights about some of the most critical business finance circumstances effecting commercial borrowers, and the approach in this report is to describe current commercial financing issues in six words.
Small business finance options are often more complicated than anticipated by many business borrowers, and we want to emphasize this point before proceeding. We are definitely not attempting to characterize business loans and working capital financing as either straightforward or simple. In fact, quite the opposite is the case. Our ongoing observation is that most business financing processes have always been excessively complicated and that meaningful improvements are not on the way. In the face of the prevailing commercial lending complexity, we nevertheless feel that it is critical for each small business owner to have an absolute and total understanding of the entire commercial finance process. To help in providing more understandable insights about commercial loans and business banking problems, this particular report is one of several thorough efforts on our part.
“Banks are saying no more often” is our first example of six words describing business financing options. For any small business owner still unaware of this harsh reality and who might doubt this observation, a series of candid conversations with other business borrowers will probably remove all doubts. The primary point to remember is that banks are not currently providing an adequate level of business loans on a widespread basis. When they hear their bank say no to routine requests for commercial financing, it is important for small businesses to realize that they are not alone.
“Commercial property values have decreased dramatically” is a second observation. There are very few exceptions. The biggest business financing impact is likely to occur with commercial refinancing situations. Even if a business owner has no interest in refinancing their commercial mortgage, many banks are aggressively recalling existing commercial real estate loans and this literally forces a borrower to seek business refinancing whether they want it or not. With decreasing commercial real estate values, business refinancing will be a challenge for most small businesses.
“Lines of credit are disappearing fast” is another six-word description of commercial financing. Even the most successful businesses need a reliable source of working capital financing, so this situation is especially serious if a business cannot replace bank financing when it suddenly disappears. Even if a business still has an adequate line of credit, it is important to realize that on a widespread basis banks are reducing and eliminating business credit lines with almost no advance notice.
“Business financing is in intensive care” is our final observation in this report. Small business owners need to be prepared to take more extreme measures such as firing their banker and finding alternative commercial funding sources. Bankers have not been sufficiently candid about commercial lending problems in the past, and nobody should expect that they will publicly announce that they are in any kind of financial trouble. On the contrary, a prevailing outlook from most banks is they are lending normally to small businesses. Commercial borrowers will need a healthy amount of skepticism when dealing with any commercial lender.
As mentioned earlier, to help small business owners survive an extremely challenging commercial lending environment, this article is one of several efforts we have undertaken. This report was intentionally designed to produce a concise overview of several complex small business finance issues by describing commercial loan difficulties in six words. A better understanding of practical business financing options for commercial borrowers should also be realized by reviewing related reports such as “six words describing working capital management” and “seven words to describe merchant cash advances”.
Stephen Bush and AEX Commercial Financing Group provide business consulting help for small business finance programs and working capital loans: