What Went Wrong with Commercial Lending and commerce, trade Financing?

By exploring what went wrong with commercial lenders and small commerce, trade financing, commerce, trade owners will be better prepared to avoid serious future problems with their working capital financing and commercial real estate financing. This is not a hypothetical issue for most commercial borrowers, particularly whether they need support with determining practical small commerce, trade finance choices that are available to them. commerce, trade owners should be prepared for the banks and bankers who caused the recent financial chaos to say that nothing has gone wrong with commercial lending and even whether it did everything is back to general. It is tough to suppose, to assume how anything could be further from the truth. Commercial lenders made serious mistakes, and according to a approved phrase, whether commerce, trade lenders and commerce, trade owners forget these mistakes, they are doomed to repeat them in the future.

Greed seems to be a common theme for several of the most serious commerce, trade finance mistakes made by many lending institutions. Unsurprising negative results were produced by the attempt to produce quick profits and higher-than-general returns. The bankers themselves seem to be the only ones surprised by the devastating losses that they produced. After two years of trying unsuccessfully to bag someone else to pay for their errors, the largest small commerce, trade lender in the United States (CIT Group) recently declared bankruptcy. We are already seeing a record level of bank failures, and by most accounts many of the largest banks should believe been allowed to fail but were instead supported by artificial government funding.

When making loans or buying securities such as those now referred to as toxic assets, there were many instances in which banks failed to peruse at cash flow. For some small commerce, trade finance programs, a stated income commercial loan underwriting process was used in which commercial borrower tax returns were not even requested or reviewed. One of the most prominent commerce, trade lenders aggressively using this approach was Lehman Brothers (which filed for bankruptcy due to a number of questionable financial dealings).

Bankers obsessed with generating quick profits frequently lost sight of a basic investment principle that asset valuations can decrease quickly and effect not always increase. Many commerce, trade loans were finalized in which the commercial borrower had dinky or no fairness at risk. When buying the future toxic assets, banks themselves invested as dinky as three cents on the dollar. The obvious assumption was that whether any downward fluctuation in value occurred, it would be a token three to five percent. In fact we believe now seen many commercial real estate values decrease by 40 to 50 percent during the past two years. For banks which made the original commercial mortgage loans on such commerce, trade properties, commercial real estate is proving to be the next toxic asset on their balance sheets. In contrast to the government bailouts to banks having toxic assets based on non-performing residential loans, it is unlikely that banks will receive similar financial assistance to cover commercial mortgage problems. As a result, a realistic expectation is that such commercial finance losses could produce serious problems for many banks and other lenders over the next several years. Much to the dismay of bar not one commerce, trade owners and as mentioned in the next paragraph, many commercial lending programs believe already been dramatically reduced.

An ongoing problem is illustrated by misleading lender statements approximately their small commerce, trade financing activities. While many banks believe routinely indicated that they are providing commerce, trade financing on a general basis, the actual results by nearly any standard indicate otherwise. It is obvious that lenders would well not admit publicly that they are not lending normally because of the negative public relations impact this would cause. commerce, trade owners will need to be skeptical and cautious in their efforts to secure small commerce, trade financing because of this specific issue alone.

There are practical and realistic small commerce, trade finance solutions available to commerce, trade owners in spite of the inappropriate commercial lending practices just described. Due to the lingering impression by some that there are not meaningful commercial lending difficulties currently, the intentional emphasis here has been a focus on the problems well than the solutions . Despite opposite views from bankers and politicians, collectively most observers would agree that the multiple mistakes made by banks and other commercial lenders were serious and are likely to believe long-lasting effects for commercial borrowers.