New Directions for Small Business Financing Services

Small business financing is heading in a new direction. The journey for small business loans is likely to have all the adventure and uncertainties experienced by a wagon train over a century ago. As historians know, wagon trains often encountered serious obstacles even when they were led by expert wagon-masters. What we are seeing now with commercial financing and working capital loans also suggests that results for commercial borrowers will be confusing, uncertain and painful at times. With commercial loan expert help, small business owners should have better results but should still anticipate unexpected challenges along the way.

One of the key factors impacting the new directions for small business financing is that banks and other commercial lenders have changed so dramatically in a very short period of time. These changes are not expected to be temporary in nature. With multiple bank examples, the new directions for commercial borrowers are not optional or voluntary. In most cases, if business owners do not quickly move in a new direction for their business financing, they will be without reliable working capital financing and commercial loans.

Because commercial lending is extremely competitive, new lenders have emerged to replace the old ones. As business financing moves in a new direction, the banking industry is beginning to resemble other aging industries such as automobile manufacturers. While the similarities are probably not welcomed by many bankers, small business owners will now find that their business finance and working capital financing choices might have improved as a result.

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.

Working Capital and Business Finance Mixed Signals

Business finance funding and working capital financing are producing mixed signals for commercial borrowers. Lenders are cutting or canceling business lines of credit, declining to refinance commercial real estate loans and declining new requests for working capital. At the same time, many business lenders have stated that they are now lending to businesses on a normal basis. The end result is likely to be confusion for small business owners — what matters at the end of the day is having sufficient cash flow to support the operational requirements of their business. The inability to borrow needed funds on an ongoing basis will quickly produce serious consequences for any business because very few businesses are debt-free. Commercial borrowers are likely to focus on locating new sources of capital once they realize that their current lenders might not be up to the task of helping their business financially. Regardless of mixed signals from commercial lenders, business owners should be prepared to take a more active and personal role in small business financing efforts to ensure that their business survives.

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.

Small Business Survival using Guerrilla Loan Tactics

Business owners should review the short term working capital and business loan "Survival Guide" summarizing guerrilla financing options to be considered in the prevailing dysfunctional banking environment. A link to this guide is provided in the right-hand column of The Working Capital Journal. It is increasingly likely that many commercial borrowers will need to aggressively employ guerrilla loan tactics and do "whatever it takes" when seeking business financing required for business survival.