Business Loans and Mixed Signals for Commercial Borrowers

Business loans and working capital financing are producing mixed signals for commercial borrowers. Many banks are cutting or canceling business credit lines, refusing to refinance commercial real estate financing and declining new requests for working capital. To confuse matters, most lenders have announced that they are actively lending to businesses. There are several economic and financial issues causing the mixed signals, but small business owners are likely to be confused in almost all cases.

From the perspective of lenders, it is probable that most banks want to be more actively providing small business loans than they currently can. Many banks have been forced to increase their liquid assets to satisfy government standards because they are undercapitalized. This can force such banks to make fewer new loans and to cancel some existing loans. In other cases, lenders have depended excessively on short-term commercial financing sources and now find themselves short of capital to make loans because their own business funding sources are proving to be inadequate.

What matters at the end of the day from the small business owner perspective is having enough cash flow to sustain their daily operational requirements. Very few businesses are debt-free, and the inability to borrow needed funds on an ongoing basis will quickly produce serious consequences. It is probably fair to say that the average business owner does not understand why they are currently unable to get adequate working capital or commercial mortgages from their current lender. However, once commercial borrowers realize that their current lenders might not be up to the task of helping their business, their primary mission is likely to involve locating new sources of capital.

Because there appears to be an adequate supply of new lending sources to fill the void left by the exit of many banks and other lenders from commercial lending, there is good news emerging from this confusing and complicated lending climate for small businesses. A prominent commercial lender recently announced that they needed more capital in order to continue making small business loans. Even though the failure of this lender would be inconvenient to businesses using their services, it has become clear that there are indeed other lending sources sufficient for solving the problem.

Business owners are in better shape than they probably realize to make it through the current business funding chaos despite mixed signals from lenders. But to ensure that their business survives, commercial borrowers should be prepared to take a more active and personal role in small business financing efforts.