Small Business Loans and Commercial Lending Problems |  |
View PDF | Print View
by: ccruiserboyy
Total views: 8
Word Count: 684
There are practical and realistic small business finance solutions available to business owners in spite of the inappropriate commercial lending practices described in this article. Because of one lingering viewpoint that any significant commercial lending problems have been eliminated, the emphasis here is not on solutions but rather on the underlying problems. Objective observers (which probably do not include most politicians and lenders) are almost unanimous that the series of errors made by business lenders are likely to be long-lasting for business borrowers in their ongoing efforts to obtain small business financing.
The process of finding what went wrong with commercial lending and small business financing is designed to help business owners avoid serious future problems with their working capital loans and commercial mortgages. For many commercial borrowers, this evaluation can prove to be invaluable, especially if they need help currently with small business finance options.
A growing and ongoing problem is represented by misleading and inaccurate statements by business lenders about their lending activities which include small business loans to business owners. While many banks have reported that they are continuing normally with small business finance programs, by almost any standard the actual results indicate something very different. It is obvious that lenders would rather not admit publicly that they are not lending normally because of the negative public relations impact this would cause. As a result of this particular issue alone, small business owners will need to be cautious and skeptical in their attempts to secure business financing.
Bankers obsessed with generating quick profits frequently lost sight of a basic investment principle that asset valuations can decrease quickly and do not always increase. Many business loans were finalized in which the commercial borrower had little or no equity at risk. When buying the future toxic assets, banks themselves invested as little as three cents on the dollar. The apparent assumption was that if any downward fluctuation in value occurred, it would be a token three to five percent. In fact we have now seen many commercial real estate values decrease by 40 to 50 percent during the past two years. Commercial real estate is proving to be the next toxic asset on their balance sheets for the many banks which made the original commercial mortgages on such business properties. While there were huge government bailouts to banks which have toxic assets based on residential mortgages, it is not likely that banks will receive financial assistance to cover commercial real estate loan losses. Over the next three years it is currently projected that these growing commercial mortgage losses will pose serious problems for the ongoing survival of many business lenders. Despite ongoing concern and criticism about current reduced business lending activity, many commercial lenders have effectively stopped any meaningful small business financing.
When making loans or buying securities such as those now referred to as toxic assets, there were many instances in which banks failed to look at cash flow. For some small business finance programs, a stated income commercial loan underwriting process was used in which commercial borrower tax returns were not even requested or reviewed. One of the most prominent business lenders aggressively using this approach was Lehman Brothers (which filed for bankruptcy due to a number of questionable financial dealings).
In evaluating the most serious business finance errors, massive greed is an inescapable theme among lending institutions. Negative results were unsurprisingly generated by an attempt to produce higher-than-normal returns and quick profits. The only people seemingly surprised by the devastating losses are the bankers themselves. The largest small business lender in the United States (CIT Group) declared bankruptcy after two years of attempting to get someone else to pay for their mistakes. By most accounts many of the largest banks should have been permitted to fail but were instead kept afloat by government bailouts, and even after that experience we are still seeing a record level of bank failures. By any reasonable measure, there were serious mistakes made by commercial lenders, and to borrow a popular phrase, if small business owners and business lenders choose to ignore these mistakes, they are doomed to repeat them.
About the Author
Steve Bush has offered candid advice to business borrowers for 25 years. He delivers business finance services and working capital help throughout the United States. Stephen is a consistent source of commercial mortgages and is CEO of AEX Commercial Financing Group ( http://aexcommercialfinancing.com )
Rating: Not yet rated
Comments
No comments posted.