More Problems for Business Loans
Based on what has been seen and reported, it is reasonable to wonder if commercial banking has more big problems lurking in the wings. For at least a year, banks have been experiencing both negative operating results and poor publicity. The commercial lending activity reported by most banks tells a different story than the portrayal as healthy and normal by bankers and politicians. While the banks have worked hard to solve their massive problems involving residential loans, the financial results have been questionable.
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 small business finance options. To avoid such negative consequences, prudent business owners should begin to take timely action now. With proper actions, the biggest small business finance problems can be anticipated and avoided.
Judging by numerous business financing measures, commercial lending is already a huge problem for most small businesses. In many cases, without government bailouts many commercial banks would have already failed. 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 finance will be the next big problem for lenders.
During the past year or so, several banking problems have received significant publicity. The largely avoidable difficulties were primarily tied to increasing home foreclosures which in turn caused various investments tied to home loans to decrease in value. Such investments lost value so rapidly that they became known as toxic assets. The federal government provided bailouts to many banks to help them to keep operating when banks stopped making many loans that included small business financing. 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. By almost any objective standard, commercial lending activities have all but abandoned small business finance needs.
Based on recent commercial banking statistics, it seems that small business financing is already the next big problem for many banks. In part this is due to the general decline in commercial real estate values during the past several years. 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). While these difficulties were predominantly happening with large real estate companies and did not regularly involve small businesses, the resulting bank losses are clearly having an impact now on commercial lending to small business owners.
Unfortunately we have already seen that the banks themselves are not likely to be forthcoming in a candid way about commercial lending problems. Even if they do nothing else, business owners should have a straightforward conversation with a small business finance expert to assess how exposed their business might be to the brewing commercial banking problems. 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. Except in rare instances, the most objective business financing expert will probably not be the current banker for a small business.
