Small Business Resource

Several years ago we published an article which provided advice about what business owners should do if their small business financing application was rejected. The commercial lending environment has now deteriorated to a point that the earlier advice is likely to be especially relevant for many businesses because banks are saying “no” more than they have in several decades.

As described in this article, while a bank saying “no” is not an outcome that any business owner would hope for, it can eventually lead to an overall improvement in commercial financing options under many circumstances. Small business owners are increasingly hearing their bank say “no” to requests for needed business financing and working capital. For most commercial borrowers this represents uncharted waters and they are often not sure what to do next.

Banks are routinely saying “no” to small businesses which are both profitable and long-term customers. Because this has become such a widespread commercial lending problem, it is now common to hear phrases such as “business loans without banks” and “thinking outside the bank” when talking about strategies small business owners might need to analyze.

There are two financing situations that businesses should especially be prepared for banks saying “no”. One of these involves commercial real estate loans and the other working capital financing (including business lines of credit). While a small number of banks are still proving to be reliable sources for some business financing options, recent nationwide commercial lending reports clearly show a drastic reduction in commercial loans for commercial real estate financing and working capital loans.

The process of replacing a bank is rarely an option which is openly pursued by a small business. However, an astute business owner will quickly realize that they have little recourse but to pursue such a path when their bank says “no” to routine requests for business financing. Even though this search for new commercial finance alternatives is undertaken under protest by most commercial borrowers, improvements to the overall financial health of a business will be achieved in a pleasantly surprising number of cases. Keep in mind that in many cities and communities, one or two banks frequently operate in a near monopoly environment. When small business owners have literally been forced to find new business finance options, they are often pleased to discover that they can not only replace existing bank financing satisfactorily but also improve their bottom line in the transition.

A prudent starting point for commercial borrowers to adequately evaluate how to get working capital and other business loans when their bank says “no” is likely to be a lengthy conversation with a small business financing expert. Finding and selecting such an expert will not be a quick or easy task for business owners, but this step is likely to be critical to eventual success in formulating a strategy for obtaining new sources of effective commercial finance funding. A crucial aspect not to be overlooked in locating a reliable expert to help is to ensure that the commercial financing expert chosen is totally independent and not affiliated in any way with the bank which said “no”.

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Author:
Stephen Bush is a small business financing expert who has worked with business owners for 30 years. AEX Commercial Financing Group provides merchant cash advances and small business finance programs.

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