Insurance and legal

It is reasonable to ask if commercial banking has more potential disasters about to emerge based on what has been seen and reported so far. Banks and other lenders have experienced both poor operating results and negative publicity for the past year or more. The commercial mortgages activity reported by most banks tells a different story than the portrayal as healthy and normal by bankers and politicians. Most bank financial results have been disappointing after working hard to solve massive residential loan problems.

Unfortunately one problem will lead to another, as is common with complex circumstances. The failure to obtain normal business finance options will most likely lead to an increasing number of commercial loan defaults by small businesses. Prudent business owners should begin to take action now in a timely manner to avoid such negative consequences. The most serious small business finance problems can be anticipated and avoided with appropriate action.

Commercial lending to small businesses is already on life support based on a number of business financing statistics. In many cases, without government bailouts many commercial banks would have already failed. As bad as that perspective might sound, this report will provide an even more negative outlook for the future of small business finance programs. While we wish it were not the case, it is likely that small business loans and working capital finance will be the next big problem for lenders.

During the past year or so, several banking problems have received significant publicity. The largely avoidable difficulties were primarily tied to increasing home foreclosures which in turn caused various investments tied to home loans to decrease in value. The questionable bank investments became known as toxic assets after losing much of their value. When banks stopped making many loans (including small business financing), the federal government provided bailout funding to many banks to enable them to keep operating. The banks have seemingly been hoarding these taxpayer-provided funds while most would argue that the bailouts were made with a specific understanding that normal lending would resume after receiving the funds. With this approach by the banks, commercial lending activities for small business finance services have been effectively downsized or eliminated.

Based on recent commercial banking statistics, it seems that small business financing is already the next big problem for many banks. The general decline in commercial real estate values during the past several years is a major factor in this conclusion. Because many large commercial real estate owners could not make their commercial mortgage loan payments or refinance business debt, this has resulted in some significant bankruptcies. The resulting bank losses are clearly having an impact now on commercial lending to small business owners even though these difficulties were primarily happening with large real estate owners and did not usually involve small businesses.

Unfortunately we have already seen that the banks themselves are not likely to be forthcoming in a candid way about commercial lending problems. Even if they do nothing else, business owners should have a straightforward conversation with a small business finance expert to assess how exposed their business might be to the brewing commercial banking problems. A healthy amount of caution and skepticism will help commercial borrowers to ensure that they obtain adequate small business loans for their business in the face of serious banking problems. For many small businesses, the most objective business financing expert is not likely to be their current banker.