Commercial Real Estate Loan Basics for Small Business Owners

The concept of intensive care being needed for working capital financing is meant to reflect the increasing difficulty that most small business owners are experiencing when attempting to obtain commercial loans from banks. While the business financing patient (commercial borrowers) might be in serious condition, appropriate specialists can frequently help in restoring financial health.

There are several reasons why intensive care comparisons might help to explain what is wrong with working capital financing and at the same time provide a healthy prognosis for impacted businesses. Business financing is proving to be a serious challenge for most small business owners. We published an earlier article noting that it appears that commercial financing is already on life support based on recent reports of reduced commercial loans made by banks throughout the country.

During the past two years, banks have lost much credibility and good will. Until the federal government provided massive bailouts for many of them, most of these lenders were on life support themselves. Some banks are effectively still in the intensive care process while others have recovered satisfactorily. Working capital financing for most small businesses is predominantly in what appears to be long-term intensive care, whether we are reviewing the healthy banks or ones still recovering. Banks are generally reducing or eliminating a large portion of their business financing activities, as indicated from most ongoing public and private reports. For example, with little or no advance notice, most banks appear to be closing commercial line of credit programs for small businesses regardless of profitability or length of the lending relationship. This is apparently not a temporary move to the sidelines but rather a permanent reallocation of resources to more profitable activities based on the manner in which this is being accomplished.

Lending activity has also decreased significantly for other forms of business financing such as commercial mortgage loans. Commercial loans have essentially been downsized or laid off just as many workers have. The realization that banks are rarely announcing publicly that these cutbacks have occurred is what makes this situation different. Perhaps bankers like to think that when they stop making small business loans nobody will notice. When it becomes public knowledge that their small business lending window is effectively closed, the bankers who placed commercial financing into intensive care are astute enough to realize that their public image will suffer even further damage.

Before they realize that the business financing world has changed before their eyes, it is possible that small business owners might need to connect several dots. Banks are simply no longer providing the commercial loan services that they once did, as this article and other reviews indicate. Commercial borrowers should primarily rely on extensive candid discussions with other small business customers of the bank to confirm whether their bank is one of the few exceptions to this new reality. The prevailing trend of less working capital financing coming from traditional banks should not be ignored even in the rare instances in which banks are truly lending “normally” to small businesses.

While business financing patients (commercial borrowers) might be in serious condition when they find that their bank will not provide needed commercial loans, experienced small business finance specialists can frequently help in restoring financial health that will facilitate a business getting out of an intensive care situation. In some cases, this involves finding a healthy bank that is willing (and able) to provide “normal” commercial loans and working capital financing. For successful commercial funding it will be necessary to explore non-bank solutions in many other instances.