Business Finance
New Sources for Working Capital
by Stephen A. Bush
As reported in The Working Capital Journal, traditional working capital loans are currently available from a shrinking number of commercial banks.
Most of these business lenders are not among the relatively small group of larger banks which have received bailout funds. Small business owners should familiarize themselves about which commercial lenders are still actively providing this kind of business finance funding.
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.
Personal and business lines of credit have been eliminated in many cases by lenders due to a reduced ability to pay by borrowers and deteriorating business conditions. As reported in The Working Capital Journal, a high percentage of borrowers, however, had an excellent payment history for many recent credit line reductions or cancellations.
Meanwhile, there are banks willing to make working capital loans. The best examples are banks which have not received federal bailout assistance. These business lenders have continued to provide working capital financing, both refinancing lines of credit and commercial 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.
There are some significant business finance conclusions apparent in the recent behavior of commercial lenders.
(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 fact that almost all lenders which have received bailout funding have failed to report where and how those funds have been spent does seem to be a possible signal that those lenders are in worse shape than public reports indicate.
(3) Business lenders that have a history of making good commercial loans rather than bad loans should be the focus of further government funding programs.
(4) When business owners encounter difficulties obtaining business loans and working capital loans from normally dependable lenders, commercial borrowers should seek out commercial finance funding sources beyond their previous banking relationships.
