Working capital management and business financing are rarely either simple or straightforward, and our concise descriptions are not meant to suggest otherwise. This report was designed to produce a concise overview of several complex small business financing and working capital issues by describing these difficulties in six words. Despite the sometimes overwhelming complexity of commercial lending, it is critical for each small business owner to have a complete understanding of all commercial finance details.

Our first six-word observation in this article is “business financing will require aggressive action”. Extreme measures such as firing their banker and finding alternative commercial funding sources for small business loans 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. Banks continue to maintain that they are lending normally to small businesses despite contrary evidence that they are not. Commercial borrowers will need a healthy amount of skepticism when dealing with any commercial lender.

Our second observation in this report is “most commercial property values have dropped”. There are very few exceptions to this disturbing trend. The biggest business financing impact will probably be produced by commercial refinancing situations. Many banks are aggressively recalling (rescinding or revoking) existing commercial real estate loans and this literally forces a borrower to seek business refinancing from another lender even if a business owner has no interest in refinancing their commercial mortgage. Business refinancing will be a challenge for most small businesses in light of widely decreasing commercial real estate values.

It is important for small businesses to realize that they are not alone when they hear their bank say no to routine requests for commercial financing, and our third example of six words describing business financing options is “bank commercial loans have limited availability”. For any borrower who might doubt this observation or be unaware of this harsh reality, candid conversations with other business borrowers will help to remove any doubts. The failure of banks to provide an adequate level of small business loans on a widespread basis is the primary point that business owners should examine more closely.

Our last six-word description of commercial financing is “business lines of credit are disappearing”. Even the most successful businesses need a reliable source of working capital financing, so this situation is especially serious if a business cannot replace bank financing when it suddenly disappears. 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.

The search by commercial borrowers for help in understanding business financing is likely to be an ongoing activity for some time to come. Banks have been the traditional source of small business loans for several decades, but this role seems to be growing to a close. For their routine business finance needs, businesses are not easily finding a bank solution. (more…)

A simple common sense solution will often be more effective than a complicated approach when businesses are faced with difficult financial circumstances. The critical importance for small business owners placing a high priority on “getting back to the basics” is exemplified by increasingly limited working capital funding options in the face of commercial banking problems.

The entire process of reviewing “working capital basics” will help businesses conclude how other commercial finance options are likely to be more effective in resolving their predicament than a traditional bank solution of taking on more business debt to resolve financial problems. (more…)