Small Business Loans and Working Capital Management Changes

Small Business Loans and Working Capital Management Changes

There have recently been a number of small business loan changes for commercial borrowers to cope with, and the situation does not seem to be improving. Rather than focus on the changes themselves in this article (we have published separate reports describing the five major changes that have occurred so far), in this discussion we will address strategies for dealing effectively with the working capital management and commercial financing changes.



The strategies described below should be helpful for most typical situations involving small business loans and working capital financing. Because even the most straightforward business finance circumstances can involve unexpected complications, it is essential for any small business owner to discuss their specific scenario with a business financing expert.

The strategy likely to be of most help for small business borrowers will be a variation of contingency planning for their commercial finance needs. In its simplest form, this involves formulating a detailed plan for what action to take when specified events occur. For example, many banks are not currently refinancing commercial real estate loans under the same terms that they have in the past. Contingency planning for business financing would prepare a small business owner for the possibility that their bank will not refinance existing business debt by evaluating alternative new commercial lending programs and sources to consider if and when that happens. Similarly, it will be prudent for commercial borrowers to anticipate that their current business lender might reduce or eliminate an existing unsecured line of credit (working capital financing not secured by commercial property) because this trend is in fact already gaining momentum with commercial banks in all regions.

Another productive approach for dealing with changes involving small business loans is to review the existing mix of working capital loans, commercial mortgages and all other forms of business financing (including credit card processing arrangements) to determine the feasibility of reducing the current level of commercial debt for a business. In many cases, both individual consumers and small businesses have assumed more debt than truly necessary because banks made it excessively easy to do so. Now that most banks have effectively made it very difficult to obtain commercial loans, it is both logical and prudent for small business owners to seriously analyze whether it is now viable to reduce their dependence on bank financing.