February 24th, 2007 | 
Author: 
Stephen Bush asked:
Small business owners are discovering that they need to explore working capital management options for replacing business lines of credit that have all but disappeared from the current small business financing choices provided by their existing bank. In a situation that is similar to the sudden elimination of familiar car brands like Saturn and Pontiac by auto manufacturers, banks have begun the process of quickly eliminating many familiar small business finance services such as commercial lines of credit.
While few banks are publicizing the fact that they are no longer providing unsecured business credit lines, it is apparent to any business owner trying to get working capital management help from their bank that most banks are now only rarely providing such business financing. There has been a drastic reduction in all forms of business financing, so the elimination of commercial credit lines should come as no surprise to most. But working capital management options do appear to be suffering from even greater cutbacks by banks, perhaps because (unlike commercial real estate loans) business lines of credit are unsecured commercial loans. This means that in the event of a loan default, commercial lines of credit do not provide the bank with an asset that they can seize.
In an obvious sign that they are eliminating unsecured working capital loans from their small business financing options, many banks have notified even their most creditworthy commercial borrowers that they have a period as short as twenty to thirty days to payoff an existing business line of credit. This approach is routinely being taken for profitable businesses that have a long and positive payment history with their current bank.
It should be helpful to review recent financial reports that describe record trading profits in an effort to determine why banks are turning their backs on what would appear to be their best customers. In most cases, banks are legally engaging in financial activities that most prudent observers would describe as speculative short term trading. While the goal of making a profit is worthy for any business, it must be questioned whether banks should continue to run the risk of speculative trading losses. The earlier bank trading activities took the economy to the brink of disaster when the housing industry imploded after banks took an equally risky position with residential loans. With the possible exception of bankers hoping for large bonuses, the determination by banks to trade their way out of earlier losses by adopting a similar lack of attention to potential risks is surely not a confidence builder, particularly when it is recognized that most of the recent financial choices made by banks were both highly unprofitable and extremely risky.
Certainly not all banks have rushed to close the doors on business lines of credit. Likewise there are in fact a few good banks still making commercial loans in a normal fashion. But the group-think mentality popular among bankers does suggest that (to borrow a popular phrase) the handwriting is on the wall.
Our earlier reports adopted a strong voice suggesting that small business owners needed to be alert for malpractice possibilities with commercial real estate financing and small business financing well before it was a popular position to take. With a similar level of concern, we have been advising commercial borrowers of the growing uncertainties in relying on banks for their working capital management needs.
Commercial Finance
Small business owners are discovering that they need to explore working capital management options for replacing business lines of credit that have all but disappeared from the current small business financing choices provided by their existing bank. In a situation that is similar to the sudden elimination of familiar car brands like Saturn and Pontiac by auto manufacturers, banks have begun the process of quickly eliminating many familiar small business finance services such as commercial lines of credit.
While few banks are publicizing the fact that they are no longer providing unsecured business credit lines, it is apparent to any business owner trying to get working capital management help from their bank that most banks are now only rarely providing such business financing. There has been a drastic reduction in all forms of business financing, so the elimination of commercial credit lines should come as no surprise to most. But working capital management options do appear to be suffering from even greater cutbacks by banks, perhaps because (unlike commercial real estate loans) business lines of credit are unsecured commercial loans. This means that in the event of a loan default, commercial lines of credit do not provide the bank with an asset that they can seize.
In an obvious sign that they are eliminating unsecured working capital loans from their small business financing options, many banks have notified even their most creditworthy commercial borrowers that they have a period as short as twenty to thirty days to payoff an existing business line of credit. This approach is routinely being taken for profitable businesses that have a long and positive payment history with their current bank.
It should be helpful to review recent financial reports that describe record trading profits in an effort to determine why banks are turning their backs on what would appear to be their best customers. In most cases, banks are legally engaging in financial activities that most prudent observers would describe as speculative short term trading. While the goal of making a profit is worthy for any business, it must be questioned whether banks should continue to run the risk of speculative trading losses. The earlier bank trading activities took the economy to the brink of disaster when the housing industry imploded after banks took an equally risky position with residential loans. With the possible exception of bankers hoping for large bonuses, the determination by banks to trade their way out of earlier losses by adopting a similar lack of attention to potential risks is surely not a confidence builder, particularly when it is recognized that most of the recent financial choices made by banks were both highly unprofitable and extremely risky.
Certainly not all banks have rushed to close the doors on business lines of credit. Likewise there are in fact a few good banks still making commercial loans in a normal fashion. But the group-think mentality popular among bankers does suggest that (to borrow a popular phrase) the handwriting is on the wall.
Our earlier reports adopted a strong voice suggesting that small business owners needed to be alert for malpractice possibilities with commercial real estate financing and small business financing well before it was a popular position to take. With a similar level of concern, we have been advising commercial borrowers of the growing uncertainties in relying on banks for their working capital management needs.
Commercial Finance
About Wade Henderson
Wade Henderson: Domestic and International Business Finance since 1995 specializing in challenge situations. "We prefer to find a way to get your loan done as opposed to finding a reason to turn it down.” Connect with me on Google+
- Web |
- Google+ |
- More Posts (9294)
Posted in 
Tags: 
Loading ...
