Mar
3
2010
More Problems for Business Loans
Author: realarIt is reasonable to ask if commercial banking has more potential disasters about to emerge based on what has been seen and reported so far. Banks and other lenders have experienced both poor operating results and negative publicity for the past year or more. The commercial mortgages activity reported by most banks tells a different story than the portrayal as healthy and normal by bankers and politicians. The financial results have been questionable after banks have worked hard to solve their massive problems involving residential loans.
As with many complex situations, one problem will lead to another. An increasing number of small business loan defaults will be the most likely result of failure to obtain normal business financing options. Prudent business owners should begin to take action now in a timely manner to avoid such negative consequences. With proper actions, the biggest small business finance problems can be anticipated and avoided.
Based on a number of business financing statistics, commercial lending to small businesses is already on life support. Commercial banking companies in many instances would have failed some time ago without government bailouts. As bad as that perspective might sound, this report will provide an even more negative outlook for the future of small business finance programs. While we wish it were not the case, it is likely that small business loans and working capital loans will be the next big problem for lenders.
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. With this approach by the banks, commercial lending activities for small business finance services have been effectively downsized or eliminated.
Small business financing appears to already look like the next big problem based on commercial finance statistics recently released by many banks. The general decline in commercial real estate values during the past several years is a major factor in this conclusion. 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). The resulting bank losses are clearly having an impact now on commercial lending to small business owners even though these difficulties were primarily happening with large real estate owners and did not usually involve small businesses.
If recent events are any indication, the banks themselves will not be very forthcoming about problems with their commercial lending practices. Small business owners should have a candid conversation with a business finance expert to evaluate if their business might be exposed to the developing commercial banking difficulties. 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. For many small businesses, the most objective business financing expert is not likely to be their current banker.
Tags: business, business financing, commercial loans, consulting, finance, loans, small business, working capital
