Christian Little

Based on what has been seen and reported, it is reasonable to wonder if commercial banking has more big problems lurking in the wings. For the past year, most banks and lenders have been subject to both disastrous operating results and negative publicity. While both politicians and bankers would like to portray banks as healthy, the commercial real estate loans practices displayed by most banks tell a different story. Most bank financial results have been disappointing after working hard to solve massive residential loan problems.

As with many complex situations, one problem will lead to another. An increasing number of small business loan defaults will be the most likely result of failure to obtain normal commercial financing. Prudent business owners should begin to take action now in a timely manner to avoid such negative consequences. With proper actions, the biggest small business finance problems can be anticipated and avoided.

Commercial lending to small businesses is already on life support based on a number of business financing statistics. Without government bailouts, commercial banking companies would have failed some time ago in many cases. Even though that outlook is bleak, this report will provide an even more negative analysis for small business finance services. Unfortunately for banks and lenders, it does appear that working capital financing and business loans will be the next big problem.

During the past year or so, several banking problems have received significant publicity. These difficulties were largely related to the rising number of home foreclosures which in turn caused a ripple effect involving various investments tied to home loans. Such investments lost value so rapidly that they became known as toxic assets. The federal government provided bailouts to many banks to help them to keep operating when banks stopped making many loans that included small business financing. The banks have seemingly been hoarding these taxpayer-provided funds while most would argue that the bailouts were made with a specific understanding that normal lending would resume after receiving the funds. Commercial lending activities have all but abandoned small business finance needs by almost any objective standard.

Small business financing appears to already look like the next big problem based on commercial finance statistics recently released by many banks. In part this is due to the general decline in commercial real estate values during the past several years. This has resulted in some significant bankruptcies when many large commercial property owners were unable to either make their commercial mortgage payments or refinance debt (or both). The resulting bank losses are clearly having an impact now on commercial lending to small business owners even though these difficulties were primarily happening with large real estate owners and did not usually involve small businesses.

Unfortunately we have already seen that the banks themselves are not likely to be forthcoming in a candid way about commercial lending problems. Even if they do nothing else, business owners should have a straightforward conversation with a small business finance expert to assess how exposed their business might be to the brewing commercial banking problems. To increase the chances that they receive sufficient small business loans in the face of ongoing lending problems, a healthy amount of skepticism and caution will be helpful for business owners. Except in rare instances, the most objective business financing expert will probably not be the current banker for a small business.