Evaluating the New Normal for Small Business Financing
Business lending has been the subject of much confusion recently, and it is appropriate for small business owners to wonder what is “normal” for commercial loans in this environment. Banks continuing to insist that they are still providing working capital management programs when in reality they have reduced or eliminated their commercial lending programs is an important part of the “new normal”. The dramatic reduction in the number of commercial lenders that are actively making small business loans is one of the most significant changes in the business finance lending environment. The rapidly growing realization that banks can be replaced when they no longer provide an adequate level of customer service has become an integral part of the “new normal” for small business owners. Far too many banks have regularly acted like they have a monopoly on their small business financing services.
The shaky current financial condition of many banks is documented by reports from the Federal Reserve and United States Treasury Department that over 50 banks did not have sufficient cash flow to make their November 2009 payments for loans made by the Troubled Asset Relief Program (TARP). Twelve banks have missed three consecutive quarterly payments. A recent report indicated that business lending activity fell by the biggest amount since records have been kept. This situation seems likely to get worse before it gets better because based on Federal Deposit Insurance Corporation statements, almost one out of every ten banks is close to failing.
Numerous banks have indicated that they will no longer continue to provide financing for many essential commercial finance services such as commercial loans. 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.
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 as a direct result of the continuing shortcomings of banks in providing an adequate amount of small business financing help as noted above. Even though banks would like their small business owner customers to believe that only a bank like them can help business borrowers, this is truly a perception advanced by the banks and bankers themselves.
As a result of significant changes to business financing options, it is necessary for small business owners to evaluate what the “new normal” looks like in order to cope with commercial lending challenges successfully. 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.
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