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SpinDistribute.com Article Directory

The following article was published in our article directory on February 10, 2010.
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Business Financing Options Hurt by Commercial Lender Changes

Article Category: Business

Author Name: Stephen Bush

Business owners will need to be especially skeptical and diligent as they approach business lenders to obtain working capital and business loans. Regardless of business income or creditworthiness, many banks have effectively stopped making any new commercial funding to small businesses. In addition to these four potential risk factors and changes for business 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 business finance activities. This means that while they might accept business loan applications, they do not intend to actually finalize commercial loans in all cases. This approach has clearly frustrated and angered business borrowers.

The four recent business lending 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 lender changes, for 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 working capital activity) is perhaps one bank perspective for the commercial loan 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 business lender change is demonstrated by revised guidelines for refinancing commercial mortgages. In almost all cases, commercial lenders 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 loan was based on a much higher percentage of business value than the bank is currently willing to provide. The lending problem is compounded even more when a current appraisal shows a decrease in value since the loan was originally made. This outcome is especially common in the midst of a distressed economy which leads to decreased business income that in turn often produces a lower commercial property value.

The difficulty of locating investment property financing illustrates another commercial 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 mortgage loans. 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 banking 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 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. To replace the disappearing commercial lines of credit, the most practical alternatives for business borrowers include working capital funding and business cash advances from one of the alternative business finance sources still active in working capital programs. This change promises to receive the highest priority from most small business owners because very few businesses can survive without a reliable source of working capital.

Keywords: commercial lending,business financing,commercial lender,working capital,lending,lender,loan,finance

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