New Normal For Small Business Financing and Working Capital Management
With business financing options that have changed significantly over the past two years, it is appropriate to review what the “new normal” looks like so small business owners will be prepared to face the challenges they face with commercial lenders. Business borrowers are more likely to find commercial financing successful by quickly accepting the fact that a “new normal” way of doing things has emerged.
The dramatic reduction in the number of commercial lenders who actively make small business loans is one of the most significant changes in the business financial lending environment. Banks continue to insist that they still provide small business financing when in fact they have reduced or eliminated their commercial loan programs are an equally important part of the “new normal”.
A recent report showed that commercial loan activity fell by the largest amount since records were kept. This trend is likely to get worse before it gets better because based on Federal Deposit Insurance Corporation accounting, almost one out of every ten banks almost fails. The current shaky financial condition of many banks is further documented by reports from the Federal Reserve and the US Treasury that more than 50 banks do not have sufficient cash flow to make payments in November 2009 for loans made by Troubled Asset Relief Program ( TARP). The payment is due every three months, and more than ten banks have missed three consecutive installments. Unlike banks that have tripled and quadrupled interest rates for individual consumers who have lost credit card payments, perhaps government regulators only hope to get their money back from delinquent banks.
Banks have been doing business too often as if they are monopolizing their small business financing services. The “new normal” for small business owners must increasingly reflect the growing realization that banks can be replaced when they stop providing adequate levels of service to their business customers.
As a direct result of the continuing shortage of banks in providing financial assistance to small businesses in sufficient quantities as mentioned above, for most business lenders, the “new normal” will involve a new bank or at least a new commercial lender (which may not be a bank at all ). Even though banks want their small business owners’ customers to believe that only banks like them can help business borrowers, this is really a myth created by bankers themselves.
For many important commercial financial services such as commercial mortgage loans, many banks have indicated that they will no longer provide such financing. For specialized business financial services such as working capital management, business consulting, and business advances, banks rarely provide cost-effective and realistic options for commercial borrowers. For business owners who have commercial loans or working capital financing that will be refinanced within the next three years, future planning will be increasingly important for the success of their small business financing. With the “new normal”, if commercial borrowers wait until their bank decides to stop the small business finance program in the future, the time will not be conducive to business refinancing.