Anticipating Commercial Bank Problems with Business Loans - By: Allan Michael Taylor

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). 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.

For the past year, most banks and lenders have been subject to both disastrous operating results and negative 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. Based on what has been seen and reported, it is reasonable to wonder if commercial banking has more big problems lurking in the wings.

Commercial banking losses on large commercial property loans are already causing many banks to stop or reduce their business 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. A ripple effect from the large commercial real estate losses has resulted in the effective disappearance of commercial funding. While small business owners did not cause this problem, they are suffering the immediate consequences when banks are unable or unwilling to provide normal levels of commercial financing to them. To make matters worse, many banks are approving fewer business loans and hoarding cash to enable them to repay federal bailout funds more swiftly. The only apparent rationale for the hoarding strategy is that it allows banks to resume executive bonuses and compensation that are not permitted until bailout funds have been repaid in full.

To increase the chances that they receive sufficient small business loans in the face of ongoing lending problems, a healthy amount of skepticism and caution will be helpful for business owners. 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. If recent events are any indication, the banks themselves will not be very forthcoming about problems with their commercial lending practices.

About the Author

Stephen Bush has provided effective advice to business owners for 25 years and furnishes merchant cash advances and small business loans throughout the United States. Stephen and AEX Commercial Financing Group are a dependable source of business financing programs

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