Cash Flow From Operating Activities Cash Flow From Financing Activities The New Normal For Small Business Financing and Working Capital Management

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The New Normal For Small Business Financing and Working Capital Management

Given that business financing options have changed dramatically over the past two years, it’s appropriate to review what the “new normal” looks like so that small business owners are prepared for the challenges they now face with commercial lenders. Business borrowers are more likely to succeed in commercial financing if they are quick to embrace the fact that a “new normal” has emerged.

The dramatic decline in the number of commercial lenders actively lending to small businesses is one of the most significant changes in the business finance lending environment. Banks continuing to insist that they are still providing financing to small businesses when in fact they have reduced or eliminated their commercial lending programs is an equally important part of the “new normal.”

A recent report showed that commercial lending activity fell by the largest amount on record. This trend seems likely to get worse before it gets better, with nearly one in ten banks close to failure, according to the Federal Deposit Insurance Corporation’s accounting. The volatile current financial condition of many banks is further documented by reports from the Federal Reserve and the United States Department of the Treasury that more than 50 banks did not have sufficient cash flow to repay their Troubled Asset Relief Program (TARP) loans in November 2009. . The payments in question are due quarterly, and more than ten banks have missed three consecutive installments. Unlike banks that have tripled and quadrupled interest rates on individual consumers who have missed credit card payments, government regulators are likely simply hoping to get their money back from delinquent banks.

All too often, banks operate as if they have a monopoly on their small business financing services. The “new normal” for small business owners should increasingly reflect the growing realization that banks can be switched when they stop providing an adequate level of service to their business customers.

As a direct result of banks’ continued failures to provide an adequate amount of small business financing assistance, as noted above, for most business borrowers the “new normal” will involve a new bank, or at least a new commercial lender (which may not be a bank at all). Although banks would like their customers, the small business owners, to continue to believe that only a bank like them can help business borrowers, this is really a myth of the bankers’ own making.

For many essential commercial financial services, such as commercial mortgage lending, many banks have indicated that they will no longer provide such financing. For specialized business financial services such as working capital management, business consulting and business cash advances, banks rarely provide a cost-effective and realistic option for commercial borrowers. For business owners who have commercial loans or working capital financing that needs to be refinanced within the next three years, planning ahead will be increasingly important to the success of their small business financing. If commercial borrowers wait until their bank decides to end future small business financing programs, given the “new normal,” the timing is unlikely to be as favorable for business refinancing.

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