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Small Business Financing Options Hurt by Business Lending Changes

by

Stephen Bush

If a small business borrower wants to continue their current banking relationship, they are likely to discover that recent commercial lending changes are permanent and cannot be escaped. A small number of new and flexible business lending sources provide a welcome exception to this trend. Nevertheless the business lender changes are likely to impact most business owners.

One of the biggest commercial lending changes involves new guidelines for working capital financing. Most banks appear to be quietly eliminating business lines of credit or severely reducing the amount they are willing to finance to a level which is not helpful to an average business. Very few businesses can survive without a reliable source of working capital, so this change promises to receive the highest priority from most small businesses. To replace the disappearing commercial lines of credit, the most practical options for business borrowers include working capital loans and merchant financing from one of the alternative commercial finance sources still active in small business financing programs. The difficulty of locating investment property financing illustrates another business lender change. If the commercial property is considered to be owner-occupied (the owner occupies a substantial portion of the building), more banks will be interested in making commercial real estate loans. Commercial properties like apartment buildings and shopping centers are often owned by investors that do not occupy the property. For many banks, it appears that they are currently restricting their commercial lending activities to those which qualify for SBA loans (Small Business Administration) which generally exclude investor-owned situations. A third significant business lending change is demonstrated by revised guidelines for refinancing commercial real estate loans. In almost all cases, commercial lenders have dramatically reduced the loan-to-value percentages that they will lend. Many banks will no longer lend over half of the appraised value for specific business types in some areas. The difficulty for a commercial borrower refinancing an existing commercial loan reach a crisis level very quickly when this happens. In many cases the original business loan was based on a much higher percentage of business value than the bank is currently willing to provide. The lending problem is further compounded when a current appraisal reveals a decrease in value since the original loan was made. Due to a distressed economy which frequently results in decreased business income that then leads to lower commercial property values, such an outcome is especially common. In a fourth example of commercial lending changes, for virtually all small business finance programs many small business owners have already discovered an inflated fee structure from most banks. Needing to find a revenue source to replace diminishing income from business loans (which has resulted from bank decisions to decrease commercial loan activity) is perhaps one bank perspective for the commercial financing fee increases. Except for unusual and unavoidable circumstances, business borrowers should seek different commercial funding sources when they encounter suddenly increased business financing fees levied by their current bank. Banks changing their overall guidelines for small business financing produce a final and widespread example of commercial lender changes. Many banks have effectively stopped making any new commercial loans to small businesses regardless of business income or creditworthiness. Unfortunately these banks are not announcing publicly that they have discontinued small business finance activities. This means that while they might accept business loan applications, they do not intend to actually finalize commercial financing in most cases. Needless to say, this approach is frustrating and enraging business borrowers whenever it becomes obvious that the bank has no real intentions of making a requested commercial mortgage or working capital loan. The five commercial lending changes described above are unfortunately the proverbial tip of the iceberg. Small business owners will need to be especially diligent and skeptical as they approach business lenders to obtain commercial real estate loans, business financing and working capital financing.

Stephen Bush has provided candid advice to business owners for more than 25 years and is a

small business loans

expert. AEX

Working Capital Financing

and Small Business Financing

Article Source:

ArticleRich.com