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In the current confusion that prevails over business lending, it is reasonable for small business owners to wonder if there is such a thing as “normal” for commercial financing. Banks continuing to insist that they are still providing working capital loan programs when in reality they have reduced or eliminated their commercial lending programs is an important part of the “new normal”. One of the most significant changes in the business finance lending environment is the dramatic reduction in the number of commercial lenders that are actively making small business loans. The “new normal” for small business owners should increasingly reflect the growing realization that banks can be replaced when they stop providing an adequate level of service to their business customers. Banks have far too often conducted business as if they have a monopoly on their business cash advance services.
Concerns about bank finances are supported by Treasury Department reports indicating that more than 50 banks did not make November 2009 payments for Troubled Asset Relief Program loans made to the banks. The payments in question are due quarterly, and over ten banks have missed three consecutive installments. A recent report showed that commercial lending activity fell by the biggest amount since records have been maintained. This trend seems likely to get worse before it gets better because based on Federal Deposit Insurance Corporation accounting, almost one out of every ten banks is close to failure.
For many essential commercial finance services such as commercial mortgages, numerous banks have indicated that they will no longer provide such financing anymore. For specialized business finance services such as working capital management, business consulting and business cash advances, banks only rarely provide a cost-effective and realistic option for commercial borrowers. Planning ahead will be increasingly important to the success of small business financing for business owners which have working capital financing or commercial loans due to be refinanced within the next few years. With the “new normal”, if commercial borrowers wait until their bank decides to pull the plug on future small business finance programs, the timing is not likely to be as conducive to business refinancing.
As a direct result of the continuing shortcomings of banks in providing an adequate amount of small business financing help as noted above, for most business borrowers the “new normal” will involve a new bank or at least a new commercial lender (which might not be a bank at all). Although banks would like their small business owner customers to think that only a bank like them can help commercial borrowers, this is truly a perception started by the banks themselves.
It is appropriate to review what the “new normal” looks like so that small business owners will be prepared to cope with the challenges they now face with commercial lenders as a result of business financing options changing significantly during the past year or so. When such major changes occur with small business finance programs, commercial borrowers will need to accept the fact that a “new normal” way of doing things has emerged in order to be successful in obtaining new commercial financing.
