Business financing and working capital financing are producing mixed signals for commercial borrowers. Lenders are now frequently cutting or canceling business lines of credit, declining to refinance commercial real estate loans and declining new requests for small business loans.   Meanwhile, most commercial lenders are publicly stating that they are lending normally to small businesses. The end result is likely to be confusion for small business owners even though the mixed signals are due to several economic and financial issues.

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 finance programs than they currently are. However, many banks are under-capitalized and have been forced to increase their liquid assets to satisfy government standards. This need for more capital has forced a number of banks to both cancel some current loans and reduce their new loan activity. Another commercial lending problem has appeared when lenders depend on short-term financing sources and are now short of capital to make loans because their previous funding sources have disappeared.

What matters at the end of the day from the small business owner perspective is having enough cash flow to sustain their daily operational requirements. Very few businesses are debt-free, and the inability to borrow needed funds on an ongoing basis will quickly produce serious consequences. The average business owner probably does not understand why they cannot get adequate working capital or small business financing from their existing bank. 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.

The good news emerging from this complicated and confusing lending climate for small businesses is that 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. Recently a large business lender declared that they needed more capital from either the government or their current investors in order to continue a prominent role in making commercial loans to small businesses. 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.

Despite the mixed signals from commercial lenders, most business owners will be able to make it through the current commercial financing chaos. In order to increase the chances of their business surviving, borrowers should take a more active role in their business financing.