Business Finance and Small Business Loan Strategies

These are certainly not the best of times for most businesses. In these challenging conditions, AEX Commercial Financing Group has several working capital financing strategies to assist commercial borrowers obtain funding. On this page we have attempted to include some insights about a few of these strategies as well as links to a more comprehensive discussion. Because business finance programs are often more complex than they first appear to business owners, we especially encourage anyone needing help to contact us directly for candid and individualized advice.

Many commercial projects are too entrepreneurial for mainstream commercial lenders. This can be especially true for funeral homes and golf courses (among others). In these situations it is not unusual for commercial borrowers to be declined for a commercial mortgage loan by a traditional bank. Commercial borrowers are likely to be confused when they are turned down and will be unsure as to why it happened and what to do next.

I have written a commercial mortgage article that highlights the main reasons that banks decline commercial mortgage loan applications. For each of the reasons that a bank might decline a commercial real estate loan, a strategy is provided for converting the declined loan into an approved commercial mortgage.

As noted above, golf course financing and funeral home financing are two excellent examples in which there are fewer commercial lenders providing effective business loans. This does NOT mean that such financing is unavailable - but it does reflect the increasing difficulty of finding viable commercial financing even for successful and profitable businesses.

Recent financial events have demonstrated that even routine small business loan situations can result in rejected commercial funding applications if a commercial borrower is dealing with a lender that is not really interested in making loans. To avoid this especially frustrating and confusing possibility, prudent business owners should contact a commercial loan expert who is experienced in handling difficult commercial real estate financing and working capital financing situations.

There are numerous business finance sites that urge borrowers to fill out an application before a business owner even has a conversation with a potential lender. There are several key reasons to avoid this questionable use of online commercial financing applications. Here are two of the potential problems.

(1) One issue is that lending for most small business loans is simply too complex to initiate by an oversimplified automated process. The apparently easy approach omits too many preliminary steps that are essential.

(2) By submitting an online business financing application, business owners will be providing confidential information to a lender before it is appropriate.

To avoid these (and other) complications, AEX has adopted this policy:

"A business owner will not be asked to submit any application until they have completed a thorough discussion with AEX Commercial Financing Group confirming that financing is feasible for their specific business situation." We have successfully applied this policy for several years to all of our commercial finance activities (which primarily involve commercial mortgage loans, working capital financing and business cash advances).

There are a number of problems to be avoided when obtaining a business cash advance that is based on credit card processing. Here are the major problems which can be avoided:

* Up-front fees
* Collateral required
* Closing costs
* 2-3 years or more in business required to qualify
* Financial Statements required regardless of business cash advance amount (Note: larger merchant cash advances can involve additional information such as financials)
* Fixed payments to pay off the business cash advance
* Fixed term to pay off the commercial financing
* Maximum business cash advance of $10,000 to $50,000
* High credit scores (frequently 680 to 700) required to qualify
* 12 to 24 months of $10,000 to $25,000 (or more) in credit card sales required

For small business owners, one of the most perplexing situations is a realization that there are now essentially "good banks" and "bad banks". To make matters worse, it is rarely easy to distinguish between the good and bad ones. The world of banking has changed dramatically for almost everyone, and many business borrowers are angry and confused by a new commercial banking landscape that does not seem to be working very well.

One of the more difficult aspects associated with the "good bank and bad bank" analogy is that there are so many competing explanations as to what constitutes a "good bank". One popular analysis has focused on how much banks are really worth in view of the "toxic" assets on their balance sheets (and a surprising number of banks have such assets). In this perspective, "bad banks" are those whose assets are estimated to be worth less than their liabilities and as a result have been referred to as "zombie banks" and "dead banks walking".

It is fair to say that we have not yet encountered a bank which has openly agreed that they deserve to be looked at as a zombie bank because their liabilities exceed their assets. This would be tantamount to describing themselves as a bankrupt bank. If a bank is truly deserving of the bankrupt status (and there are a number which certainly appear to be in this category), the current banking laws do not permit such a bank to go through the kind of bankruptcy process being pursued by Chrysler. Instead the Federal Deposit Insurance Corporation (FDIC) is (supposedly) required by law to assume the operation of the "bankrupt" bank until a new management and ownership arrangement can be established.

The reason that the FDIC has not liquidated larger problematic banks has not been made public. One obvious possibility is the belief that the public failure of a major bank would create a crisis of confidence for virtually every other bank whether they are financially healthy or not. An equally strong likelihood is that the FDIC simply does not currently have sufficient assets to cover the failure of a big bank. This viewpoint is supported by the recent announcement that the FDIC is in the process of raising fees paid by banks in order to replenish the FDIC insurance funds. A third interpretation (that many banks are rushing to emphasize) is how difficult it is for the FDIC or anyone else to determine the current value of the "toxic" assets.

In these confusing circumstances, small business owners need their own evaluation standards to determine what constitutes either a "bad bank" or "good bank" as it relates to the future financial health of their own business. In most cases, this should include a results-oriented assessment of which banks can provide the needed commercial loan and working capital help for their specific business circumstances. While such information would go a long way toward establishing a good bank-bad bank distinction, the banks themselves are not likely to be helpful in providing the needed data to produce this candid evaluation.

Virtually all banks have reduced commercial lending dramatically during the past few months. Some specialized business lending such as commercial construction financing has been frozen altogether in many areas. We are left to draw our own conclusions whether such banks are not lending normally to business owners because either (1) they do not have sufficient resources to do so, or (2) these banks are fearful that the economy is about to get much worse before it gets better and therefore business loans are ill-advised from their current lending perspective. Of course, many banks have suggested that neither of the previous two scenarios are accurate and have said that they are back to lending "normally" for small business financing (most reports and statistics indicate that this is not the case).

In addition to the critical importance of identifying "good banks", we have published a related report which describes the delicate issue confronting many business owners who might need to fire their banker. Just as there are "good banks" and "bad banks", there are also "good bankers" and "bad bankers".

Business finance consulting has emerged as an important tool to help small business owners work their way through a complicated commercial banking maze. In the Bernie Madoff fiasco, one of the common questions asked repeatedly is why investment advisors did not evaluate the Madoff internal operations prior to placing investor funds with his Ponzi scheme. Drawing upon lessons which should be learned from the mistakes made in the Madoff situation, our candid final point is that businesses now need to act more aggressively than before in order to protect their own financial interests.