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Finding and Solving Problems with Small Business Loans |
Article Submitted by: karle donald
Monday, 08 March 2010
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Objective observers (which probably do not include most politicians and lenders) are almost unanimous that the series of errors made by business lenders are likely to be long-lasting for business borrowers in their ongoing efforts to obtain small business financing. Because of one lingering viewpoint that any significant commercial lending problems have been eliminated, the emphasis here is not on solutions but rather on the underlying problems.
Small business owners will be more likely to avoid serious future business finance problems with working capital management and commercial real estate loans by exploring what went wrong with business financing and commercial lending. This is not an academic exercise or a waste of time for most commercial borrowers, particularly if they need help with determining practical small business finance choices that are available to them.
An ongoing problem is illustrated by misleading lender statements about their small business financing activities. While many banks have reported that they are continuing normally with small business finance programs, by almost any standard the actual results indicate something very different. From a public relations viewpoint, it is clear that banks would rather not admit publicly that they are not lending normally. As a result of this particular issue, small business owners will need to be cautious and skeptical in their attempts to secure business financing.
Commercial bankers routinely lost sight of a basic investment principle that asset valuations will not always increase and in fact can decrease quickly. Many commercial loans were made in which there was little or no equity by the business borrower. Banks invested almost nothing in cash (as little as three cents on the dollar) when buying future toxic assets. The apparent assumption was that if any downward fluctuation in value occurred, it would be a token three to five percent. To demonstrate how wrong the bankers were, commercial real estate values in many areas have already decreased during the past two years by up to 50 percent. For banks which made the original commercial mortgage loans on such business properties, commercial real estate is proving to be the next toxic asset on their balance sheets. In contrast to the government bailouts to banks having toxic assets based on non-performing residential loans, it is unlikely that banks will receive similar financial assistance to cover commercial mortgage problems. As a result, a realistic expectation is that such commercial finance losses could produce serious problems for many banks and other lenders over the next several years. Despite ongoing concern and criticism about current reduced business lending activity, many commercial lenders have effectively stopped any meaningful small business financing.
There were many instances in which banks failed to look at cash flow when making loans or buying securities such as those now referred to as toxic assets. For some small business finance programs, a stated income commercial loan underwriting process was used in which commercial borrower tax returns were not even requested or reviewed. One of the most prominent business lenders aggressively using this approach filed for bankruptcy due to a number of questionable financial dealings.
Commercial lenders made serious mistakes by almost any standard used to evaluate them, and according to a popular phrase, if business lenders and business owners forget these mistakes, they are doomed to repeat them in the future. Negative results were unsurprisingly produced by an attempt to produce higher-than-normal returns and quick profits. By most accounts many of the largest banks should have been permitted to fail but were instead kept afloat by government bailouts, and even after that experience we are still seeing a record level of bank failures. To close with a positive observation, there are practical and realistic small business finance solutions available to business owners in spite of the inappropriate commercial lending practices described in this article.
Steve Bush and AEX Commercial Financing Group are a dependable source of business finance services and commercial real estate financing. Stephen has provided effective advice to small businesses for 30 years and furnishes working capital and commercial mortgages Article Source: http://www.ArticleBlast.com |
About The Author:
When business borrowers evaluate what caused recent difficulties with small business financing, they will be more likely to avoid future problems with working capital loan and commercial finance choices.
When business borrowers evaluate what caused recent difficulties with small business financing, they will be more likely to avoid future problems with working capital loan and commercial finance choices.
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