Always Have a Plan B — plan Bush


Some More Words about Small Business Financing


The search by commercial borrowers for help in understanding small business financing is likely to be an ongoing activity for some time to come. Banks have been the traditional source of small business loans for several decades, but this role seems to be growing to a close. Business owners are not easily finding a bank solution for their routine business finance needs. As a result, it has become essential for borrowers to both evaluate their commercial finance needs and find new sources for commercial financing and working capital loans. This AEX report provides a series of brief explanations about some of the most critical commercial lending issues likely to be confronted by small businesses. These concise comments are part of an extensive series published by Stephen Bush to describe the often-confusing aspects about small business financing in just a few short words (typically ranging from six to ten words). Here are the descriptions used in this report:

  • "It is necessary to have realistic expectations."
  • "Banks are not the solution, they are the problem."
  • "Avoid online applications for business financing."
  • "Small business owners should have a Plan B."

"It is necessary to have realistic expectations" is an essential perspective for small business owners to have in the problematic loan climate displayed by most commercial lenders serving small businesses.

Gone are the days of buying a business with little or no down payment. Another situation to expect is the previous relative ease of getting working capital being replaced by a less predictable lending climate for any form of working capital that is not secured by tangible assets. Refinancing commercial real estate loans is now dependent on a much longer list of underwriting requirements that can realistically make attempts to refinance either difficult or impossible.

"Banks are not the solution, they are the problem" describes the unfortunate reality that bankers are just not what they used to be for most small business finance situations.

Even in 2016 and beyond, it is rare for a week to go by without further negative news about the poor financial health of lending institutions. Movies like "The Big Short" perform a public service by not allowing us to forget how the banks and bankers almost led everyone into financial oblivion just a few short years ago. In one report issued several years ago, it was noted that there were more problem banks (banks judged by the Federal Deposit Insurance Corporation as being more likely to fail) than anytime in the past eighteen years. The number of these troubled banks quickly grew from 305 in early 2009 to 884 in 2010. By 2012 the total of problem banks was still in excess of 700. As a result, it is likely to become even more difficult for commercial borrowers to get water from a well that is running dry.

"Avoid online applications for business financing" is some candid advice for small business owners  desperately seeking new commercial finance funding.

This suggestion is a specific attempt to emphasize that it is not prudent to provide confidential business finance information before it is determined that commercial financing is feasible for a particular financial need. Such automated application processes are obviously a convenience for the lender, but this does not translate to a sufficient reason for exposing private business data without knowing more about the small business loan criteria that will be used by the commercial lender receiving the information. An effective substitute for this questionable practice is to have a lengthy and candid individualized discussion with a small business financing expert to determine what the practical commercial loan options are in advance.

"Small business owners should have a Plan B" is a reflection of the realistic possibility that something will go wrong with a current small business financing option.

Business owners should do some advance planning to prepare for this. Contingency planning has always been a worthwhile task for a small business to employ for their management operations. It is strongly recommended that a variation of contingency planning also be adopted to help soften the blow if problems develop with existing business finance services. By engaging in this forward-looking approach to working capital management and commercial loans, businesses will frequently uncover financial improvements that they can make immediately.

This article demonstrated some of the most important factors currently impacting small business financing. It should be noted that this brief evaluation covers only a small part of the total business lending picture likely to be experienced by small business owners. In other words, as bleak as this accounting might be, it is only the tip of the iceberg when it comes to commercial financing problems that exist for small businesses today. Everyone must hope for improvement in this situation, and this discussion is provided as one tool for small business owners to use in their efforts to become more successful in securing reliable working capital financing and commercial loans.




SBA Rule for Women-Owned Businesses

It is increasingly necessary to search for and implement specialized commercial financing alternatives when business borrowers are confronted with difficult lending scenarios. Sometimes the situation will involve credit scores. Other common examples can involve discriminatory lending practices by banks and other lenders in which women-owned businesses are refused a small business loan when companies owned by men received funding in similar circumstances. As a step in the right direction the SBA (Small Business Administration) has established several initiatives such as a small business rule to help women-owned businesses obtain better access to opportunities for federal contracting.