Commercial Lending Guide

For any borrower impacted by mixed signals and confusion, the final decision will vary according to their specific situation. But among the difficult issues to be weighed in the decision-making process is likely to be whether it is feasible to find a new small business financing source.

Many commercial borrowers are reluctantly realizing that banks are just not what they once were. In a manner similar to many automobile manufacturers that are now a tarnished and shriveled version of what they once were, it seems like almost overnight most banks have lost the confidence of their borrowers. With such changes, small business owners are facing a new commercial loan environment and must adapt quickly. Even if their commercial banker is their best friend, small business owners are increasingly realizing that they must look out for their own best interests because their business banker might not be up to the task anymore.

This is a practical and candid analysis of current circumstances facing most business owners. Unwinding a long-term relationship with a particular bank or banker is likely to produce some of the same trauma that occurs when any positive relationship suddenly goes sour. Ultimately everyone will move forward after doing the best that they can. Any business owner agonizing over the firing of their banker should candidly assess the consequences of not making such a change. Most business owners will conclude that they should find a new bank if keeping the old bank is holding their business back, either by inadequate business financing or poor advice.

Despite the complicated and confusing lending climate for small businesses, there appears to be an adequate supply of new business loan sources to fill the void left by the exit of many banks and other lenders from commercial lending. Having a reliable and effective business loan provider to consistently support the operational requirements of their business is what matters to most business owners after all is said and done.

Bank rage is emerging as a practical issue for small business financing and small business owners. In the following paragraphs, several key components of the current bank rage are discussed. One of the realistic commercial finance solutions which can be considered by business owners is described briefly.

A good starting point for understanding bank rage is the observation that small business owners are rapidly discovering firsthand that banks are not what they used to be. Many small business owners are finding that they need commercial financing help for the first time in a generation due to the severity of recent economic turbulence. A change in how banks take risks is one primary factor causing this problem for small business owners. While some business loans involving a certain amount of risk were previously provided to small businesses, banks have seemingly stopped making such commercial loans. Due to changes in legal guidelines, the primary risk-taking activities for most banks typically do not involve small businesses but instead opportunities offering the bank a higher profit potential. Investing in portfolios of risky residential mortgages only to discover that investments do not always go up in value is a prime example of how many banks over-leveraged their balance sheets. These investments are now usually referred to as toxic assets because they are either worthless or it will be a long time before anyone could sell them at a break-even value.

More business owners and depositors have begun to scrutinize how banks are using their scarce resources, and a substantial portion of the current bank rage can be attributed to the results of this analysis. Many well-known banks are paying million-dollar salaries and bonuses to employees who have already taken their employers to the brink of disaster rather than using their scarce resources for traditional uses like business financing programs for small business owners and commercial property owners. As noted above, banks which should know better purchased what are now known as toxic assets for as little as three cents on the dollar of their own money. The true source of money invested in toxic assets is probably capital provided by bank depositors and shareholders. In what has to be seen as an outrage to almost everyone, even after banks have reported losing billions of dollars as a result of toxic asset transactions, they have repeatedly paid out billions of dollars to employees responsible for those worthless investments. While some will joke that this is nice work if you can get it, most pragmatic observers will readily say that this is no way to run a bank.

In the meantime, the outlandish behavior of numerous bad banks has clearly victimized the remaining good banks. Determination of whether their current banking relationship involves one of the good banks or bad banks might be the most practical business finance option to be evaluated by small business owners. At the end of the day, we all need to get beyond the prevalent bank rage and move forward. Realizing that firing their banker might be the most appropriate course to follow will be an important option for small business owners to prepare for in looking out for their own best interests.

This report is designed to serve as a short survival guide for business owners when they are seeking small business loans. The need for adopting guerrilla loan methods has been made worse by the diminished performance of commercial banks in offering worthwhile financial programs for businesses. The suggestions contained within this article should be considered by most commercial borrowers in the early stages of their financial searching instead of a means of last resort due to the growing failure of banks to provide normal levels of business funding.

Business Consulting as a First Line of Defense

To be quite frank, the commercial lending climate that we are facing today is hard on inexperienced borrowers, especially when they are faced with the more complex small business finance problems that are available and with banks that are often not working as they should for them. Employing an expert who can serve as a business consultant with an expertise in commercial finance should be thought of as an option for those business owners looking to increase their knowledge base substantially. Hiring a business consultant with experience in small business loans can be the solution to a problem most commercial borrowers won't acknowledge. While a business finance consultant with an appropriate level of expertise will require a business owner to pay a reasonable fee for their specialized help, this professional cost can generally be justified when compared to the potential financial damages which might occur if this kind of help is not obtained.

Determine Whether Your Bank is a Good Bank or a Bad Bank

The most practical gauge for defining whether a bank is good from a small business owner perspective will often be guided by whether the needed commercial financing can be provided or not. Although banks have been broadly proclaiming that they are providing a normal level of commercial funding, in reality there are multiple reports indicating otherwise. Business finance consultants with experience can be a valuable resource because they know which lending establishments actively make commercial mortgage and capital loans available. If a certain bank is actually not offering commercial loans like they usually do, it probably is because they don't have enough money to lend. While this bank might not feel they deserve the bad bank label, our perspective is that results count. On the only scorecard that matters to most commercial borrowers, the small number of good banks will gradually become obvious based on their healthy business lending habits. In the meantime, business owners should expect to need some professional help in finding these few remaining good banks.

Be Prepared to Fire Your Bank and Your Banker

For small business owners, the idea of firing their banker has perhaps not occurred to them yet. Most businesses would probably like to think of their banker as one of the family. However, when seeking a business loan in the current chaotic economic environment, small business owners must look out for their own best interests more and more because their bankers (who truly may be their best friends) are no longer coming through for them. In the commercial world, if a banker shows a pattern of being unable to achieve goals or offers initially discussed and arranged, it may be a sign that the borrower needs to fire their banker.

Business Cash Advances and Other Options for Working Capital

In order for small businesses to be successful in an unstable economy, guerrilla loan tactics which may have been overlooked due to their complexity or expense should be investigated. A merchant cash advance program (also referred to as credit card receivables factoring) is a key example of a commercial financing strategy which has frequently been a Plan B for many merchants but often not utilized in their final choice for acquiring more working capital. With a sudden reduction in business lines of credit and an increased requirement for collateral by many commercial lenders, the use of credit card processing to obtain working capital financing now has more practical appeal for the typical small business owner who needs more cash for their daily operations.

More Guerrilla Tactics for the Small Business Survival Guide

This brief discussion was intended to illustrate the importance for small business owners doing whatever it takes to survive in a tough business climate. Besides the guerrilla financing tactics outlined above, there are a number of other important working capital management and small business loan alternatives that should be taken into consideration by commercial borrowers before they finalize a commercial loan or commercial real estate financing.