For the past year most banks and lenders have been subject to both disastrous operating results and negative publicity. Actual commercial lending activity reported by banks is contrary to the usual attempt by politicians and bankers to show banks as normal and healthy. The financial results of most banks have been disappointing after working hard to solve major housing loan problems. It is reasonable to ask if commercial banks have more potential disasters to arrive on the basis of what has been seen and reported so far.
Based on a number of corporate finance statistics lending is already available to small businesses for commercial lending. In many cases many commercial banks would already have failed without government bailouts. As bad as this perspective sounds this report will provide an even more negative view on the future of small business financing programs. Unfortunately for banks and lenders it seems that business loans will be the next big problem.
During the past year several banking problems have gained high publicity. The largely impossible difficulties were primarily linked to increased home cuts which in turn caused various investments linked to housing loans to decrease in value. Such investments lost the value so quickly that they became known as toxic assets. When the banks stopped making many loans including small business financing the federal government provided bailout funding to many banks in order for them to continue to work. While most observers would argue that bailouts were made with the implicit understanding that bank lending would be resumed in any normal way the banks seem to inhibit these taxpayers for a rainy day. With almost any target standard commercial lending operations have all abandoned the small businesses financial needs.
Financing of small businesses seems to already look like the next major issue based on commercial financial statistics recently released by many banks. The general decline in commercial real estate values in recent years is an important factor in this conclusion. Since many large commercial property owners could not pay their commercial mortgage or refinance corporate loans this has resulted in some significant bankruptcies. The resulting bank losses clearly impact on commercial lending to small businesses despite the fact that these difficulties occur mainly with large property owners and usually did not involve small businesses.
Bank losses on large commercial real estate loans have caused many banks to reduce or stop their small scale financing and this clearly resembles the previous situation of mortgage bonds toxic assets that cause banks to end normal lending due to capital shortage. Bank losses from large commercial real estate investors give rise to a ripple effect that has led to the disappearance of small business financing. While small business owners did not cause this problem the immediate consequences suffer when banks can not or willing to provide normal level of commercial funding to them. This bad situation is even worse when we learn that many banks are collecting money and approving fewer commercial loans so that they can quickly repay bailout funds back to the federal government. The primary logic for this approach is that it will allow banks to resume excessive bonuses and compensation to their managers.
Unfortunately one problem will lead to another which is common with complex circumstances. Failure to get normal corporate finance is likely to lead to an increase in the number of commercial loans as standard by small businesses. Careful entrepreneurs should start taking action now on time to avoid such negative consequences. The most serious small business finance problems can be expected and avoided by appropriate measures.
Even if they do not do anything else business owners should have a simple conversation with a small business expert to assess how vulnerable their business may be to bridge commercial banking problems. If the latest events are any indications banks will not themselves be very upset about problems with their commercial lending practices. For many small businesses the most objective corporate finance expert is unlikely to be the current bank. To increase the chances of getting enough small business loans against the ongoing lending problems a healthy amount of skepticism and cautiousness will be helpful to business owners.