Our approach in this report is to describe current business finance circumstances in six words. We have adopted a similar model in other commercial finance reports such as "seven words describing commercial real estate financing". After hearing an almost endless number of reports about commercial lending difficulties, what small business owners might need most is a more concise explanation about these problems and the resulting impact on their business financing options. This report was produced in a direct effort to provide more understandable insights about some of the most critical commercial loan issues effecting commercial borrowers.
Small business finance options are often more complicated than anticipated by many business borrowers, and we want to emphasize this point before proceeding. We are definitely not attempting to characterize business loans and working capital financing as either straightforward or simple. Actually, we are making the opposite case. The unfortunate reality that most business financing processes have always been excessively complicated and that meaningful improvements are not on the way is one of our ongoing observations. We nevertheless feel that it is critical for each small business owner to have an absolute and total understanding of the entire commercial finance process in the face of the prevailing commercial lending complexity. To help in providing more understandable insights about commercial loans and business banking problems, this particular report is one of several thorough efforts on our part.
"Banks are saying no more often" is our first example of six words describing business financing options. A series of candid conversations with other business borrowers will probably remove all doubts for any small business owner still unaware of this harsh reality and who might doubt this observation. The failure of banks to provide an adequate level of business loans on a widespread basis is the primary point to remember. When they hear their bank say no to routine requests for commercial financing, it is important for small businesses to realize that they are not alone.
"Commercial property values have decreased dramatically" is a second observation. There are very few exceptions. Commercial refinancing situations will probably produce the biggest business financing impact. Many banks are aggressively recalling existing commercial real estate loans and this literally forces a borrower to seek business refinancing even if a business owner has no interest in refinancing their commercial mortgage. Business refinancing will be a challenge for most small businesses in view of decreasing commercial real estate values.
"Lines of credit are disappearing fast" is another six-word description of commercial financing. This situation is especially serious if a business cannot replace bank financing when it suddenly disappears because even the most successful businesses need a reliable source of working capital financing. On a widespread basis, banks are reducing and eliminating business credit lines with almost no advance notice, and this must be realized even if a business still has an adequate line of credit.
"Business financing is in intensive care" is our final observation in this report. Extreme measures such as firing their banker and finding alternative commercial funding sources will need to be anticipated by small business owners in many cases. Nobody should expect that bankers will publicly announce that they are in any kind of financial trouble after recalling that they have not been sufficiently candid about commercial lending problems in the past. In a contrary viewpoint, banks seemingly maintain that they are lending normally to small businesses. When dealing with any commercial lender, commercial borrowers will need a healthy amount of skepticism.
As mentioned earlier, to help small business owners survive an extremely challenging commercial lending environment, this article is one of several efforts we have undertaken. This report was intentionally designed to produce a concise overview of several complex small business finance issues by describing commercial loan difficulties in six words. A better understanding of practical business financing options for commercial borrowers should also be realized by reviewing related reports such as "six words describing working capital management" and "seven words to describe merchant cash advances".
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