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Small Business Financing and Bank Rage
By plrprousers | October 1, 2009
Bank rage has become a practical concern that cannot be ignored for small business financing and small businesses. Some of the key factors producing the bank rage are covered within this comment. One of the realistic commercial finance solutions which can be considered by business owners is described briefly.
An acknowledgment that small businesses are suddenly realizing that banks are not what they were just a few years ago is a practical starting point for understanding the bank rage that has become commonplace. Because of economic turbulence, many small business owners are now finding that they genuinely need business financing help for the first time in a generation. A primary change causing this problem for commercial property owners has been the quick reversal in how banks take risks. Banks have seemingly stopped making commercial loans involving risks which were previously acceptable. The risk-taking activities for most banks no longer emphasize small businesses but instead high-risk opportunities offering the bank a higher profit possibility. Carelessly investing in risky residential mortgages that do not always go up in value is a prime illustration of how balance sheets were over-leveraged by many banks. These investments are now usually referred to as toxic assets because they are either worthless or it will be a long time before anyone could sell them at a break-even value.
A substantial portion of the current bank rage can be attributed to the results of scrutinizing how banks are using their scarce resources. Instead of traditional uses like working capital financing for small business owners and commercial property owners, many well-known banks are paying million-dollar salaries and bonuses to employees who have already taken their employers to the brink of disaster. Typically paying as little as three cents on the dollar in cash and leveraging the remainder with debt, banks which should have known better unwisely invested in multiple varieties of what are now referred to as toxic assets. The true source of money invested in toxic assets is probably capital provided by bank depositors and shareholders. In the most outrageous examples of all, banks which literally lost billions of dollars have subsequently paid out more billions of dollars to employees responsible for the sour investments. Most pragmatic observers will readily say that this is no way to run a bank, while a few will joke that this is nice work if you can get it.
In the meantime, the outlandish behavior of numerous bad banks has clearly victimized the remaining good banks. Determination of whether their current banking relationship involves one of the good banks or bad banks might be the most practical business finance option to be evaluated by small business owners. Getting beyond bank rage and subsequently moving forward is a prudent goal for any small business. Small business owners should be prepared to look out for their own best financial interests and realize that firing their banker might be the most appropriate course to follow.
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