This article provides some realistic small business financing options for commercial borrowers to consider if their bank cannot help. What to do if their bank says no to a request for commercial loans and working capital is on a growing list of problems that small businesses cannot ignore in the face of commercial banking difficulties.
By Stephen Bush
Because of a deteriorating commercial lending environment, some of our earlier advice is now likely to be especially relevant for many businesses. Banks are currently saying “no” more frequently than they have in decades, and we provided advice a few years ago about what actions business owners should consider if their bank rejected a small business financing request.
A bank saying “no” can actually lead to an overall improvement in commercial financing options under many circumstances, although a business owner is not likely to hope for the business loan rejection in the first place. With requests for needed business financing and working capital, small business owners are increasingly hearing their bank say “no”. Most commercial borrowers are often not sure what to do next since such an awkward situation represents uncharted waters for them.
Banks are routinely saying “no” to small businesses which are both profitable and long-term customers. Because this has become such a widespread commercial lending problem, it is now common to hear phrases such as “business loans without banks” and “thinking outside the bank” when talking about strategies small business owners might need to analyze.
There are two financing situations that businesses should especially be prepared for banks saying “no”. One of these involves working capital loans (including commercial lines of credit) and the other commercial real estate financing. While a small number of banks are still proving to be reliable sources for some business financing options, recent nationwide commercial lending reports clearly show a drastic reduction in commercial loans for commercial real estate financing and working capital loans.
Small businesses have only rarely pursued the option of replacing their bank. There is little recourse but to pursue such a path when their bank says “no” to routine requests for business financing, and astute business owners need to quickly accept this harsh reality. Improvements to the overall financial health of a business will be achieved in a pleasantly surprising number of cases even though this search for new commercial finance alternatives is undertaken under protest by most commercial borrowers. Keep in mind that in many cities and communities, one or two banks frequently operate in a near monopoly environment. When small business owners have literally been forced to find new business finance options, they are often pleased to discover that they can not only replace existing bank financing satisfactorily but also improve their bottom line in the transition.
A prudent starting point for commercial borrowers to adequately evaluate how to get working capital and other business loans when their bank says “no” is likely to be a lengthy conversation with a small business financing expert. A critical step to eventual success in formulating a strategy for obtaining new sources of effective commercial finance funding is likely to be finding and selecting such an expert, but it should be realized that this is not likely to be a quick or easy task for business owners. Ensuring that the commercial financing expert chosen is totally independent and not affiliated in any way with the bank which said “no” is an especially crucial aspect not to be overlooked in locating a reliable expert to help.
Stephen Bush has provided candid advice to business owners for 30 years and is a commercial loan expert. AEX Commercial Financing Group offers small business financing and working capital options