Risky Business for Commercial Loans

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by: Stephen Bush
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Word Count: 533
Date: Tue, 16 Aug 2011 Time: 6:04 AM
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When analyzing alternative business solutions that involve almost any difficulty, a critical puzzle piece is often found by evaluating the benefits, risks and costs associated with the problem in question. While this principle can be successfully applied to commercial mortgages and working capital loans, it is nevertheless an imposing task for those who are inexperienced. To further complicate the dilemma, commercial finance is usually more complicated than a business owner typically expects. It is also a predictable aspect of human nature to attempt to fix problems without outside help.

For many small businesses, the process of obtaining commercial mortgage loans and working capital has begun to feel like an unsolvable maze without the likelihood of accomplishing positive results no matter how hard one tries. While this might seem like an opportune time for borrowers to reach out to their banker for help, the combination of a significant reduction in bank loans to small businesses and the high number of bank failures has provided some compelling evidence that banks might be the problem and not the solution when faced with these challenging circumstances.

Commercial borrowers do not always realize it in a timely fashion, but business finance risks can be accurately measured and reduced. However this requires a detailed understanding of commercial financing as well as a realization of the underlying importance of undertaking such an arduous task in the first place. More often than not, one or both of these conditions are probably lacking, and unfortunately the most common outcome is some variation of skipping the whole matter.

Such problematic events should provide business owners with a timely insight that this is a fertile climate in which to be more thorough and prudent when seeking a candid evaluation of their realistic options. Perhaps the most important news in all of this is that a core group of risk factors can be measured before working capital or commercial real estate financing are obtained. While this will not guarantee a particular result, it should increase the probability of avoiding unnecessary problems before the long-term financial health of a business is irreversibly impacted.

It should come as no surprise to anyone that some parties are likely to object to the need for analyzing or reducing business loan risks in the first place. It will usually be instructive to stop and ask who might be suggesting that financial risk management is not necessary. Risk measurement as applied to business finance decisions is simply too important to omit even when there appear to be sound reasons to do so. Could it be an advisor who might not be the commercial finance expert that they think they are? Alternatively ask yourself if it is because a loan broker is simply trying to close a deal rather than properly emphasizing the best interests of the borrower? Could it be because a banker has a vested interest in finalizing an agreement that results in fees for them? In the end each business owner should be prepared to be as aggressive as necessary to ensure that they have adequate risk control for working capital management and commercial loans.

About the Author

Stephen Bush is a commercial loan expert who has developed practical business finance solutions for commercial mortgage and working capital financing problems. Small business owners should contact Steve at AEX Commercial Financing Group to receive a candid review of current financial options.