A New Normal For Working Capital Management And Business Loans

The best that can be hoped for under the current difficult circumstances for commercial lending and commercial loans is that a "new normal" does exist for business borrowers, although for most commercial borrowers it probably appears that there is no such thing as "normal" anymore. It is only natural for a small business owner to want to know what the "normal" way to do something looks like, whether they are talking about small business loans, commercial mortgages or working capital management.

Eventually those impacted will need to accept the fact that a "new normal" way of doing things has emerged when substantial changes occur as we have seen recently with small business loans. It is appropriate to review what the "new normal" looks like so that small business owners will be prepared to cope with the challenges they now face in dealing with commercial lenders with options for commercial mortgages and commercial loans changing significantly during the past two years.

One of the most significant changes in the business financing landscape is the dramatic reduction in the number of commercial lenders that are actively making small business loans. An equally important part of the "new normal" is that many banks continue to state that they are still providing small business financing when in reality they have reduced or eliminated their commercial loan services. A recent report showed that commercial lending activity plunged by the biggest amount since records have been kept by government regulators. Because almost one out of every ten banks is close to collapsing (based on Federal Deposit Insurance Corporation reporting), this trend seems likely to get worse before it gets better.

It should be noted that because of massive government bailouts over a year ago, not all banks are in trouble. The biggest banks were saved by taxpayer assistance and have seemingly returned to profitability. A healthy amount of skepticism by commercial borrowers is warranted when attempting to project future financial health for a bank by looking at recent banking profits. In many cases the largest banks have increased their speculative trading activities and banking fees which has in fact led to a short-term improvement in profits. Due to both regulatory changes as well as consumer backlash, it is not likely that these activities will continue to produce the same level of long-term profits.

For most business borrowers the "new normal" will involve a new bank or at least a new commercial lender (which might not be a bank at all) as a direct result of the continuing shortcomings of banks in providing an adequate amount of small business financing help as noted above. Planning ahead will be increasingly important to the success of small business financing for business owners which have commercial real estate financing due to be refinanced within the next three years. Long-term business clients are now being told by many banks that they will no longer provide commercial mortgages and working capital loans. If commercial borrowers wait until their bank decides to pull the plug on future commercial loans, the timing is not likely to be as conducive to business loan refinancing.

As noted above, when a new source of business financing is located, the commercial lender does not have to be a bank. It is truly a myth created by the banks themselves when they suggest to their small business owner clients that only a bank like them can help commercial borrowers. Numerous banks have indicated that they will no longer provide such financing anymore for many essential commercial finance services such as commercial mortgages. Banks only rarely provide a realistic and cost-effective option for specialized business finance services such as working capital management, business cash advances and business consulting.

Automobile manufacturers such as Chrysler and General Motors have declared bankruptcy (and still might not be able to compete effectively in selling their products profitably), so banks will understandably not want to be compared to such recent problems. Nevertheless this particular comparison is more appropriate than ever before because (like the automobile industry) banks have failed to adapt to a changing business environment. Many banks have acted as if they have a monopoly on their commercial mortgage and business loan services. This practice has led to a number of abuses that include excessive fees, reduced loan amounts and arbitrarily rejected financing requests from commercial borrowers. The "new normal" for small business owners should increasingly reflect the growing realization that banks can be replaced when they stop providing an adequate level of service to their business customers. When small businesses exert their true power to actively choose who they do their commercial loans financing with, business owners can effectively turn the tables on the banks which have mistreated them and establish a "new normal" for the bankers.