Working Capital Business Loans

Traditional lenders providing competitive commercial financing for special purpose commercial real estate loans and business cash advances are becoming increasingly rare. "Thinking Outside the Bank" means that non-traditional (non-bank) lenders should be evaluated for commercial mortgage and working capital loan situations.

When commercial borrowers "Think Outside the Bank", it is of critical importance that they are prepared to avoid a wide variety of problematic traditional as well as non-traditional commercial lenders in their search for viable business financing, especially when it involves business cash advance (credit card receivables and credit card factoring) programs, credit card processing services and commercial real estate financing.

Borrowers should realize that they have more commercial loan options than they think in order to take advantage of "Thinking Outside the Bank". These business financing options are referred to here as "Thinking Outside the Bank" because most commercial borrowers believe that a bank is the best source for a commercial loan.

Here are two brief examples about how a commercial borrower is likely to benefit by "Thinking Outside the Bank". In many situations a traditional bank will provide a commercial mortgage but will include non-competitive covenants and terms. In other cases a traditional bank will decline the business loan because they do not provide commercial financing to the commercial borrower's particular type of business.

Some borrowers are likely to feel that a traditional bank is their best source for a commercial mortgage or commercial loan. However, because most traditional banks focus on a small number of established industries, non-traditional (non-bank) and non-local commercial lenders should be actively considered for most business financing situations. As discussed in this article, the suggested business loans strategy is "Thinking Outside the Bank".

As described in a prior commercial loan report, in many business financing scenarios it is typical for a traditional bank to require more business loan covenants than would normally be seen in a competitive commercial mortgage situation. Traditional banks can unfortunately take advantage of a shortage of commercial lenders in their local market area.

An effective response by borrowers is to emphasize business financing options other than the traditional ones. It is not wise for business borrowers to depend only upon local and regional banks for commercial loan possibilities. For common commercial financing circumstances, a non-local business lender can frequently provide the best business loan terms because of competition with other business lenders.

There are three business loan scenarios in which borrowers will commonly discover that non-traditional lenders will offer terms that are better for the business owner: commercial real estate financing and SBA loan programs, working capital business loan programs and business management programs for credit card processing.

Two of the worst commercial real estate financing problems for business owners can be eliminated by "Thinking Outside the Bank". The first commercial mortgage business loan problem is the typical bank practice to eliminate most special purpose business properties such as golf courses and funeral homes from their lending portfolio.

A second business loan possibility is the frequent practice of many commercial banks to add recall and balloon conditions to their commercial loans. The bank can then require early payoff of the commercial real estate loan under stipulated conditions. The use of a non-traditional lender can prevent both of these commercial financing problems.

Most businesses accepting credit cards will be able to obtain a business cash advance with credit card financing. If a business needs to use credit card factoring, a traditional bank will typically be of little help.

Because even the most successful merchants usually need more financial resources than they can get from a conventional commercial business loan, it is essential for a business to "Think Outside the Bank" and find non-traditional lenders to coordinate this commercial financing requirement.

A credit card processing service can be a key function in improving the bottom line of merchants with high volume credit card activity. The analysis of credit card processing providers can be efficiently combined with credit card receivables and credit card financing.

Working Capital Financing and Commercial Loans Hurt by Business Lending Changes

Recent business banking changes have reduced commercial loan choices for many small businesses. This article describes several key change areas that should be anticipated by commercial borrowers.

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

The four recent business banking 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 lending changes, for small 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 business financing activity) is perhaps one bank perspective for the commercial financing 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 commercial lender change is demonstrated by revised guidelines for refinancing commercial mortgage loans. In almost all cases, business bankers 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 financing was based on a much higher percentage of business value than the bank is currently willing to provide. When a current appraisal reports a decrease in value since the original loan was made, the lending problem is further compounded. This outcome is especially common in the midst of a distressed economy which leads to decreased commercial income that in turn often produces a lower commercial property value.

The difficulty of locating investment property financing illustrates another business 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 mortgages. 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 lending activities to those which qualify for Small Business Administration financing (SBA loans) which generally exclude investor-owned situations.