Commercial Loans and Working Capital Finance

Small business owners needing working capital loans should waste no time in determining which banks are currently active in providing this unsecured form of business finance funding. The most productive business lenders (those making the most new commercial loans) are generally not found among the larger banks which have received federal bailout assistance to date. As detailed in The Working Capital Journal, such specialized commercial financing help is currently available from a small (and getting smaller by the day) group of commercial lenders.

In most cases the active commercial lenders for this specialized form of commercial funding are limiting working capital loans to businesses which are current in their debt payments and are showing a net profit (based on recent financial statements). If these two conditions are met, new commercial loans can frequently be obtained to refinance lines of credit and term loans which have been cancelled or recalled by many lenders. For businesses not qualified for commercial financing using these two requirements, there are alternative funding sources such as business cash advance programs.

Many small business owners also rely on personal lines of credit to finance some of their business operations. There have been many reports of widespread cancellations and reductions of these lending programs as well, especially those involving lenders which have received a multi-billion dollar cash infusion from U.S. taxpayer money that was intended to facilitate the lending of money to businesses and consumers.

In many cases, business and personal lines of credit have been eliminated by lenders because of deteriorating business conditions and a reduced ability to pay by borrowers. However, as described in The Working Capital Journal, many borrowers had an excellent payment history for a high percentage of recent credit line cancellations or reductions.

Meanwhile, there are banks willing to make working capital loans. The most notable examples are (for the most part, anyway) not banks which have received bailout funds. These business lenders have continued to provide working capital financing, both refinancing lines of credit and term loans which have been recalled or cancelled by other lenders as well as new business financing.

Because it basically indicates that bailout funds have been given (so far) to lenders who primarily have a history of making bad loans (virtually all lenders receiving bailout funds to date), the lending activities described above are a serious concern to many observers. At this point, little attention has been given to lenders with a healthy balance sheet in federal attempts to get more funds into the hands of consumers and businesses.

Based on recent commercial lending activity, there are several notable conclusions.

(1) Businesses need to increasingly prepare for life without relying on a traditional bank line of credit and instead consider other viable sources of commercial financing such as business cash advances (which provide working capital based upon future credit card processing activity).

(2) The recent unwillingness by most lenders receiving bailout funds to report in any meaningful way how and where these funds have been used would certainly seem to be a loud and clear signal that these particular lenders are probably in worse shape than they are reporting to anyone.

(3) Commercial lenders that have a history of making good loans rather than bad loans should be the focus of further government funding programs.

(4) Business owners should be willing to seek out commercial finance funding sources beyond their previous banking relationships when they encounter difficulties obtaining working capital loans and commercial loans from normally dependable lenders.

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