Analyzing the New Normal for Small Business Loans

Many small business owners are wondering what is “normal” for commercial loans in the current confused business lending climate. An important part of the “new normal” is that many banks continue to state that they are still providing small business financing programs when in reality they have reduced or eliminated their commercial lending programs. One of the most significant changes in the business finance lending environment is the dramatic reduction in the number of commercial lenders that are actively making small business loans. The rapidly growing realization that banks can be replaced when they no longer provide an adequate level of customer service has become an integral part of the “new normal” for small business owners. Far too many banks have regularly acted like they have a monopoly on their small business financing services.

The shaky current financial condition of many banks is documented by reports from the Federal Reserve and United States Treasury Department that over 50 banks did not have sufficient cash flow to make their November 2009 payments for loans made by the Troubled Asset Relief Program (TARP). The payments in question are due quarterly, and over ten banks have missed three consecutive installments. A recent report indicated that business lending activity plunged by the biggest amount since records have been required. This trend seems likely to get worse before it gets better because based on Federal Deposit Insurance Corporation documentation, almost one out of every ten banks is close to collapse.

For many essential commercial finance services such as commercial mortgages, numerous banks have indicated that they will no longer provide such financing anymore. For specialized business finance services such as working capital management, business consulting and business cash advances, banks only rarely provide a cost-effective and realistic option for commercial borrowers. Planning ahead will be increasingly important to the success of small business financing for business owners which have working capital financing or commercial loans due to be refinanced within the next few years. With the “new normal”, the timing for business borrowers is not likely to be as smooth for commercial refinancing once the bank decides to pull the plug on their small business finance services.

For most business borrowers the “new normal” will involve a new bank or at least a new commercial lender which might not be a bank at all as a direct result of the continuing shortcomings of banks in providing an adequate amount of small business financing help as noted above. While banks would like their small business owner customers to keep thinking that only a bank like them can help business borrowers, this is truly a perception created by the banks and bankers themselves.

With business financing options changing significantly during the past two years, it is appropriate to review what the “new normal” looks like so that small business owners will be prepared to cope with the challenges they now face with commercial lenders. When such major changes occur with small business finance programs, commercial borrowers will need to accept the fact that a “new normal” way of doing things has emerged in order to be successful in obtaining new commercial financing.

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