Business Loans Are a Growing Problem

Judging by numerous small business financing measures, commercial lending is already a huge problem for most small businesses. Without government bailouts, commercial banking companies would have failed some time ago in many cases. Even though that outlook is bleak, this report will provide an even more negative analysis for working capital loans and small business finance services. Unfortunately for banks and lenders, it does appear that small business loans will be the next big problem.

For at least a year, banks have been experiencing both negative operating results and poor publicity. The business banking 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. It is reasonable to ask if business banking has more potential disasters about to emerge based on what has been seen and reported so far.

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. Because many large commercial real estate owners could not make their commercial mortgage loan payments or refinance business debt, this has resulted in some significant bankruptcies. 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.

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. 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. The banks have seemingly been hoarding these taxpayer-provided funds while most would argue that the bailouts were made with a specific understanding that normal lending would resume after receiving the funds. With this approach by the banks, commercial lending activities for small business finance services have been effectively downsized or eliminated.

Commercial banking losses on large commercial property loans are already causing many banks to stop or reduce their commercial finance activities, and this has unfortunate similarities to how residential mortgage toxic assets caused banks to stop normal lending because of a shortage of capital. The bank losses from large commercial property investors are producing a ripple effect that has caused business funding to effectively disappear until further notice. Small business owners are being penalized when banks are unable or unwilling to provide normal levels of commercial finance funding to them because of losses involving larger commercial property companies. This bad situation is made even worse when we learn that many banks are hoarding cash and approving fewer commercial loans to allow them to quickly pay bailout funds back to the federal government. The primary logic for this approach is that it will allow banks to resume excessive bonuses and compensation to their executives.

A healthy amount of caution and skepticism will help commercial borrowers to ensure that they obtain adequate commercial loans for their business in the face of serious banking problems. Small business owners should have a candid conversation with a small business finance expert to evaluate if their business might be exposed to the developing commercial banking difficulties. For many small businesses, the most objective small business financing expert is not likely to be their current banker. If recent events are any indication, the banks themselves will not be very forthcoming about problems with their business banking practices.

As with many complex situations, one problem will lead to another. An increasing number of business loan defaults will be the most likely result of failure to obtain normal small business financing and working capital financing. To avoid such negative consequences, prudent business owners should begin to take timely action now. The most serious commercial finance complications can be anticipated and avoided with appropriate action.Steve Bush is a reliable source of small business loans and is CEO of AEX Commercial Financing Group ( http://twitter.com/aexbushfour ). Stephen has offered effective advice to business owners for 25 years. He delivers business financing services and merchant cash advances throughout the U.S.