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Because of a deteriorating commercial lending environment, some of our earlier advice is now likely to be especially relevant for many businesses. Banks are currently saying “no” more frequently than they have in decades, and we provided advice a few years ago about what actions business owners should consider if their bank rejected a small business financing request.

As described in this article, while a bank saying “no” is not an outcome that any business owner would hope for, it can eventually lead to an overall improvement in commercial financing options under many circumstances. Small business owners are increasingly hearing their bank say “no” to requests for needed business financing and working capital. Most commercial borrowers are often not sure what to do next since such an awkward situation represents uncharted waters for them.

Banks are routinely saying “no” to small businesses which are both profitable and long-term customers. It is now common to hear phrases such as “thinking outside the bank” and “business loans without banks” when talking about strategies small business owners might need to analyze because this has become such a widespread commercial lending problem.

There are two financing situations that businesses should especially be prepared for banks saying “no”. One of these involves commercial real estate loans and the other working capital financing (including business lines of credit). While a small number of banks are still proving to be reliable sources for some business financing options, recent nationwide commercial lending reports clearly show a drastic reduction in commercial loans for commercial real estate financing and working capital loans.

Small businesses have only rarely pursued the option of replacing their bank. However, an astute business owner will quickly realize that they have little recourse but to pursue such a path when their bank says “no” to routine requests for business financing. Improvements to the overall financial health of a business will be achieved in a pleasantly surprising number of cases even though this search for new commercial finance alternatives is undertaken under protest by most commercial borrowers. Keep in mind that in many cities and communities, one or two banks frequently operate in a near monopoly environment. When small business owners have literally been forced to find new business finance options, they are often pleased to discover that they can not only replace existing bank financing satisfactorily but also improve their bottom line in the transition.

A prudent starting point for commercial borrowers to adequately evaluate how to get working capital and other business loans when their bank says “no” is likely to be a lengthy conversation with a small business financing expert. Finding and selecting such an expert will not be a quick or easy task for business owners, but this step is likely to be critical to eventual success in formulating a strategy for obtaining new sources of effective commercial finance funding. Ensuring that the commercial financing expert chosen is totally independent and not affiliated in any way with the bank which said “no” is an especially crucial aspect not to be overlooked in locating a reliable expert to help.

Commercial finance is one of the many options available to entrepreneurs seeking capital to start or grow an existing business. This sort of financing is also referred to as asset-based lending, meaning that it is a secured business loan. The borrower guarantees the loan by giving up business assets as collateral for the loan. Another popular phrase for commercial finance is asset-based finance.

Account receivable factoring is one form of commercial finance. This consists of selling open invoices for cash that can be used right away in the business. There are many benefits to this financing option including not giving up equity, being able to take advantage of early payment and volume discounts from your suppliers, you can actually purchase in greater volume from suppliers, and you also accrue no additional debt in your business.

Another popular commercial finance option is purchase order financing because it offers quick cash flow reserves. When any business is growing or expanding their business the cash flow simply isn’t there because of the money it takes to market and produce products. Suppliers also want to be paid with C.O.D. and your customers are on Net-30 terms; so you run into a cash flow problem. Purchase order financing solves this issue by paying for the costs of your goods directly to the supplier, thus giving you more cash to use on more critical business expenditures. To begin with purchase order financing simply obtain a purchase order from your customer, find an approved supplier, place the order through that supplier.

Asset based loans, an additional commercial finance option, provide a short term approach to maximizing cash flow within a business. This form of financing is used as test for a business to show how they would perform with a long term loan. The business who is receiving the asset based loan has a short window to prove that with the proper financing their business model is effective, and that a long term loan would ensure business growth over a long period of time. This form of financing is perfect for the business that can’t afford to wait to establish their business credit. The assets that are accepted as collateral for this type of loan include real property, accounts receivables, and completed inventory.

Other forms of commercial finance include bankruptcy reorganization, expansion financing, import and export financing, inventory loans, secured lines of credit, and merchant account advances. Financing a business is a difficult process, but if you utilize the financing resources available, your business have a much greater chance of success.

It is also good to work on establishing your business credit, ensuring that you separate your personal credit from your business credit. With good business credit scores obtaining large loans and other forms of capital is very simple, and you won’t be one of the 97 percent that actually have a loan application denied. One other strategy that is easy to do and beneficial on your quest for business capital is to use a free business capital search engine.