The Bad Banks and Good Banks

We have published "Good Banks - Bad Banks" to help small business owners find the increasingly smaller number of good banks while avoiding the growing number of bad banks. A link to this report can be found in the right-hand column of The Working Capital Journal. As noted in our analysis, commercial borrowers should be prepared to act more aggressively to protect their own financial interests. Each business owner should conduct their own results-oriented assessment of which bank(s) can provide an appropriate level of business financing and working capital help for their unique business situation.

Commercial Loans and Bank Rage

In most situations involving commercial loans and working capital, bank rage is emerging as a practical issue for business owners. A substantial portion of the current bank rage can be attributed to how banks are using their scarce resources. Instead of traditional uses like working capital financing for small business owners and commercial property owners, many well-known banks are paying million-dollar salaries and bonuses to employees who have already taken their employers to the brink of disaster. Typically paying as little as three cents on the dollar in cash and leveraging the remainder with debt, banks which should have known better unwisely invested in multiple varieties of what are now referred to as toxic assets. Realistically most will point out that this is no way to run a bank. Meanwhile, the few remaining good banks have effectively been victimized by the outlandish behavior of the many bad banks. Getting beyond bank rage and subsequently moving forward is a prudent goal for any small business — the most practical solution for most business owners is to determine whether their current banking relationship involves one of the bad banks or one of the good banks.

New Small Business Loan Sources

Some of the most effective new small business loan sources are operating regionally rather than nationally. Realistic commercial loan solutions will depend on a combination of underwriting criteria such as (1) type of financing; (2) business activities; (3) size of loan; (4) business location; (5) length of operating history; (6) cash flow; and (7) debt repayment history. Business owners need to be aware that there are a number of active commercial lenders which are currently making small business loans to businesses. While there are viable solutions and some new commercial financing sources, even the most effective small business financing sources will not be able to help all businesses. However, because many small business owners are being routinely told by current lenders that they cannot provide needed small business loan and working capital help, commercial borrowers should anticipate that new commercial loan sources might be needed.

Refinancing Small Business Loans and Working Capital

Difficulties for refinancing small business loans are occurring frequently with short term working capital financing and long term commercial real estate loans. In some cases commercial borrowers are attempting to secure additional cash, and in other situations they are being forced to refinance an existing commercial loan by the current lender. With either possibility, most small businesses are trying to deal with reduced sales and cash flow, and this makes refinancing business debt both more important and more difficult. Whatever the specific financing situation for a small business, commercial borrowers should be better prepared if they approach the process with a realization that there might not be the usual solutions for refinancing business loans. It is likely that businesses will need to evaluate new commercial lending sources and new business financing programs before the end of their efforts to refinance business debt.

Working Capital Loans

Working capital loans are not currently available from many banks. However, business financing options are emerging to fill the void left by banks which have abandoned commercial lending. To help understand the current shortage of working capital financing, it is increasingly clear that there are at least three major factors underlying the reduced bank lending capabilities for short term capital financing. Although many banks are exiting commercial finance programs, some promising new business funding choices are available. In most cases, small business owners will find the new working capital loan options to be a substantial improvement over previous bank financing. We are finding that more businesses are qualifying for these working capital loans because impractical bank underwriting criteria have been eliminated. There is a short turnaround time for receipt of working capital if a business qualifies for this practical and straightforward business financing program.

Firing Your Business Banker

Firing your bank and your banker has become both a more acceptable and necessary solution when your business is not able to obtain sufficient commercial financing from current lending sources. We have published a report ("Firing Your Banker") to help highlight some of the issues for this timely subject matter — please see the right-hand column of The Working Capital Journal for a link to this candid assessment.

Dead Banks Walking

For any business owner needing a commercial loan or working capital financing, the concept of "Dead Banks Walking" should prove helpful. This description was used very accurately by the Nobel Prize winning economist Paul Krugman (New York Times, 1-18-09, article entitled "Wall Street Voodoo") when he recently noted that many banks have essentially already gone broke (based upon a true net worth assessment that recognizes that many of their assets are either worthless or at least worth well below the values reflected on their books).

This observation most certainly calls into question why the government should be throwing money at these “zombie banks” (a term also used by Mr. Krugman) in the first place. But perhaps of equal importance, this viewpoint also offers small business owners some insights as to how they should select a potential source for their future commercial financing activities. Not only have most of the largest banks in the United States been shown to be worth even less than General Motors or Merrill Lynch (or Lehman Brothers — which is already in bankruptcy), but they have also almost universally shown the worst business judgment imaginable in terms of how they spend money and make loans.

This is NOT behavior which should be rewarded by astute business owners when determining which bank deserves their business. You CAN do better! Fortunately AEX Commercial Financing Group is aware of several banks that are very visible exceptions to the “Dead Banks Walking” metaphor. Please contact us for a candid discussion about how to eliminate “zombie banks” from your future business finance funding.

We're all in this together

AEX Commercial Financing Group was helping with business finance funding difficulties well before the current financial crisis was recognized by most lenders and commercial borrowers. If anything, we are now increasing our efforts to assist small business owners with the growing challenges involved when seeking new commercial loans or refinancing existing working capital loans. As these challenges evolve, AEX is committed to helping in any way that we can.

In the Working Capital Journal and elsewhere, we have written extensively that so far only a small number of financial companies appear to be acting as if they truly understand that “We’re all in this together” — a special concern that we have is that the largest banks (essentially those receiving federal funds recently to assist with their troubled financial operations) are NOT acting in this manner at all. This has resulted in two major problems for commercial borrowers: (1) the banks receiving bailout funds have failed (so far) to resume a normal lending pattern for commercial finance funding (even though the funds have supposedly been provided to do just that, and these same banks seem to be unable to report to anyone how they are in fact spending billions of dollars); and (2) to make matters even worse, most of these banks are actually REDUCING their business loans and commercial real estate loans by recalling outstanding loans or cancelling business lines of credit.

The good news to emerge from the irresponsible commercial lending activities of many banks: this has made it easier for most business owners to decide who they want to do business with in the future — namely those business lenders who are currently acting as if “We’re all in this together”. AEX Commercial Financing Group would be happy to discuss with commercial borrowers more specifically which commercial lenders have been acting like responsible corporate citizens and business neighbors (and which ones have chosen “the dark side” and should therefore be avoided for all future business financing).

Credit Card Financing

The use of credit card financing usually refers to business cash advances in which working capital is obtained by business owners based upon future credit card processing activity. What we want to highlight here is the increasing use of personal credit cards by small business owners to obtain operating cash for their business. As we have reported in the Business Loan Help section of The Working Capital Journal, because many lenders have suddenly reduced or cancelled business lines of credit, small business owners have increasingly been forced to rely on cash obtained via credit cards to sustain their businesses. We strongly urge all commercial borrowers to review our discussion entitled “Credit Cards — Predatory Lending at its Worst” in order to prepare for some undesirable actions being taken by many lenders which have a substantial credit card loan exposure.

Business Cash Advances

Business Cash Advance and Credit Card Processing Executive Summary:
AEX Commercial Financing Group has prepared a practical and concise executive summary about business cash advances (also referred to as credit card receivables financing, credit card factoring and working capital advances). Topics include (1) five reasons for obtaining a business cash advance based upon credit card processing activity; (2) ten problems to avoid with a working capital advance; (3) six criteria for credit card receivables financing up to $300,000 (and higher as appropriate); and (4) why AEX strongly advises that business owners avoid the use of online commercial finance applications for both merchant cash advances and other business financing.