Working capital financing and small business loans are producing mixed signals for borrowers. Business lenders are increasingly reducing or canceling commercial lines of credit, refusing to refinance commercial mortgages and turning down new requests for business financing. In contrast to their actual lending practices, most lenders have announced that they are lending normally to businesses. There are several economic and financial issues causing the mixed signals, but small business owners are likely to be confused in almost all cases.

Looking at this perplexing situation from a lending perspective, it is likely that most commercial lenders truly want to be more active in providing small business loan programs than they currently are. However, many banks are undercapitalized and have been forced to increase their liquid assets to satisfy government standards. This unfortunately forces such banks to cancel some existing loans and to make fewer new loans. In other cases, lenders have depended excessively on short-term commercial financing sources and now find themselves short of capital to make loans because their own business funding sources are proving to be inadequate.

Having enough cash flow to support daily operational requirements is a critical need from the perspective of a small business owner. Very few businesses are debt-free, and the inability to borrow needed funds on an ongoing basis will quickly produce serious consequences. When an avaerage business owner cannot get adequate working capital or commercial mortgage loans from their existing bank, they often will not understand why. The primary mission for commercial borrowers is likely to involve locating new sources of capital once they realize that their current lenders might not be up to the task of helping their business financially.

Because there appears to be an adequate supply of new lending sources to fill the void left by the exit of many banks and other lenders from commercial lending, there is good news emerging from this confusing and complicated lending climate for small businesses. A prominent commercial lender recently announced that they needed more capital in order to continue making small business loans. It has become clear that there are other lending sources sufficient for solving the immediate problem, recognizing that the failure of this lender would be an inconvenience to businesses using their services.

Most business owners will be able to make it through the current commercial funding chaos in spite of mixed signals from commercial lenders. Borrowers should plan to take a more personal and active role in small business finance efforts to ensure that their business survives.

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