Small business loan programs and working capital funding are resulting in mixed signals for borrowers. Lenders are now frequently cutting or canceling business lines of credit, declining to refinance commercial real estate loans and declining 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 finance programs than they currently are. However, many banks are undercapitalized and have been forced to increase their liquid assets to satisfy government standards. This can force such banks to make fewer new loans and to cancel some existing 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.

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. 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. 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. Even though the failure of this lender would be inconvenient to businesses using their services, it has become clear that there are indeed other lending sources sufficient for solving the problem.

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

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