Business Financing - The Best and Worst Finance Trends of 2007
By Stephen Bush
Many of the business loan trends emerging last year have serious implications for business borrowers considering new financing or refinancing in the near future. It was a classic case of good news mixed with bad news when reviewing commercial loan and working capital management developments for 2007.
For business cash advance and credit card processing services, the past 12 months have been characterized by significant changes. There were many providers both entering and exiting these business activities. It is of course good news that some ineffective providers were forced to leave this specialized working capital management service area. But the bad news is that there are still many new and inexperienced companies attempting to operate in this complex field.
A similar trend involving inexperience can be seen in viewing the large number of residential financing brokers now attempting to transition into business financing. Since by some estimates approximately 100,000 residential financing employees lost their jobs during 2007, there is a real possibility that thousands of unqualified brokers will be entering the business finance field during 2008 or have already started the process.
There was a visible reduction in SBA loan providers during the past few months. This is primarily a positive development, since the field has long been overpopulated with inadequate business lenders.
During the past 12 months a large number of regional and local banks eliminated or reduced their business financing services. Perhaps the most negative aspect of this development is that most borrowers received very little advance notice from their previous lenders and therefore had to scramble to arrange new financing. The silver lining to this otherwise negative trend is that a surprising number of borrowers have obtained improved financing as a result of dealing with a new lender that truly specializes in working capital management and commercial real estate financing.
One trend that directly impacts refinancing and getting cash out during the refinance process is a general loan-to-value decrease by many lenders. For purchase situations including special purpose properties such as church financing, slightly larger down payment requirements are increasingly more common.
Although the general decrease in interest rates during the past year is a positive development, there will probably be some confusion among commercial borrowers who have adjustable rate terms when they do not see their rates reduced. In all likelihood, this will be due to a common clause applied to most commercial loan contracts that stipulate that the minimum rate for such agreements will never be less than the initial rate. With such a floor rate provision, this means that if a borrower starts with an adjustable rate set at 10% and then rates fall, the effective loan rate will remain at the initial rate.
A significant commercial real estate and business opportunity development has been the expanding activity in response to reduced residential investment possibilities. Due to many investors who would rather avoid property ownership, the lack of real estate in business opportunity investing is an attractive aspect.
Stephen Bush is a commercial mortgage business loan expert - learn about avoiding working capital mistakes and find out about business financing solutions at AEX Commercial Financing Group - http://aexcommercialfinancing.com
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