Working Capital Financing and Commercial Loans Hurt by Business Lending Changes

Business owners will need to be especially skeptical and diligent as they approach business lenders to obtain working capital loans and small business loans. Regardless of business income or creditworthiness, many banks have effectively stopped making any new commercial loans to small businesses. In addition to these four potential risk factors and changes for commercial lending, there are additional problems that should be anticipated much as with the proverbial iceberg.Unfortunately these banks are not announcing publicly that they have discontinued working capital activities. This means that while they might accept small business financing applications, they do not intend to actually finalize commercial financing in all cases. This approach has clearly frustrated and angered business borrowers.The four recent business banking changes described in this article are likely to impact most business owners. If a commercial borrower wants to continue their present banking relationship, in most cases they will find that the business lender changes are permanent and cannot be avoided.In the first example of commercial lending changes, for small business financing 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 business financing activity) is perhaps one bank perspective for the commercial financing fee increases. Except for unusual and unavoidable circumstances, borrowers should review different business funding sources when they encounter increased business loan fees levied by their current bank.A second significant commercial lender change is demonstrated by revised guidelines for refinancing commercial mortgage loans. In almost all cases, business bankers have dramatically reduced the loan-to-value percentages that they will lend. In some areas and for specific types of businesses, many banks will no longer lend over half of the appraised value. The difficulty for a commercial borrower refinancing an existing commercial loan reaches a crisis level very quickly when this happens. In many cases the original business financing was based on a much higher percentage of business value than the bank is currently willing to provide. When a current appraisal reports a decrease in value since the original loan was made, the lending problem is further compounded. This outcome is especially common in the midst of a distressed economy which leads to decreased commercial income that in turn often produces a lower commercial property value.The difficulty of locating investment property financing illustrates another business banking 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 mortgages. Investors that do not occupy the property often own commercial investments like shopping centers and apartments. For many banks, it appears that they are currently restricting their commercial lending activities to those which qualify for Small Business Administration financing (SBA loans) which generally exclude investor-owned situations.One of the biggest commercial lender changes involves new guidelines for working capital funding. Most banks appear to be quietly eliminating commercial lines of credit or severely reducing the amount they are willing to finance to a level which is not helpful to an average business. To replace the disappearing business lines of credit, the most practical alternatives for business borrowers include working capital funding and business cash advance services from one of the alternative commercial financing sources still active in business finance programs. This change promises to receive the highest priority from most business owners because very few small businesses can survive without a reliable source of working capital financing.