Commercial Loans For Working Capital

Working capital financing for many years represented one of the simplest and most straightforward forms of commercial loans for small businesses

. The typical source was a local bank, and banking institutions established an entire group of financial services around this kind of small business loan. Commercial borrowers representing companies of all sizes eventually depended on the reliability and ease of obtaining working capital management help. Much like cable companies currently bundle a collection of their services, the bank version of bundling included multiple financial products like lines of credit, payroll management and credit card processing along with working capital loans to fund purchases of supplies and other routine business expenses.

To carry the analogy a bit further, imagine what would happen if all of the cable and satellite providers suddenly stopped offering their services. It would seem somewhat chaotic and many of us would not be sure where to turn next. In fact most banks started pulling the plug on small business financing five or so years ago, and in almost all cases the first service to largely disappear was working capital finance. This action initially impacted both small and large companies, but as time went on the working capital funding to larger companies was gradually restored.

While banks have frequently stated that everything is now back to normal in terms of their commercial lending activities, a closer look tells a different story. In particular, small business owners have found it necessary to evaluate alternative sources for routine working capital needs, and in most cases the new lender is not a bank. Banking services for small businesses are now primarily focused on high profit items such as credit card processing. Because this is in fact was one of the previous working capital products, it also enables a bank to maintain an appearance that they are still in the business of providing working capital help.

As is often the case when problems occur unexpectedly, small businesses have regularly discovered that their new working capital management strategies have produced better and cheaper financial help for their companies. In the process of identifying new and better sources for commercial loans of all kinds, it has become easier for small business owners to realize that they had been overpaying for many bank services. For example, the reason that most banks have attempted to remain active in providing credit card processing services is that this area has such high profit margins. When a company owner looks carefully at what other credit card processing providers charge in comparison to their bank, it is common to see how surprised they are when discovering the substantial cost savings by firing their bank. Such pleasant financial surprises have made it easier for small businesses to adapt to the changing environment for working capital.

by: Stephen Bush

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