Can a Business make loan headway with just cash flow?

Can a business or medical practice successfully obtain financing based primarily on just the cash flow in their account? In many cases businesses can, including medical related businesses, and tough to fund Chiropractors.   In the case of a Chiropractor a chiropractor practice business loan can be obtained based primarily on the cash flow of the practice.  What are the full benefits a business can obtain by keeping extra funds in their account?

- The company or medical practice will appear to be on more solid financial footing when they have substantive balances in their account. It will give the company the appearance that they can handle sudden business needs that arise and better handle emergencies.

- The company or practice is in better position if a funding request is made by having strong cash flow history in the most recent 3 months.  If a company has more significant balances, the lenders will feel that the company has a better capacity to repay an additional payment on a monthly basis.  

- If there is any possibility that the company will be sold later, or an unexpected offer of a buyout arises in the future, the buyer will feel more compelled to meet a figure closer to the asking price if the business or medical practice has strong cash flow.   If the company is later sold or a buyout offer is made, the company purchasing will want to look at the financials, including the last 2 years bank statements.   When these bank statements reflect strong cash flow, the prospective buyer will feel confident in the future of the business he is buying. 

Banks are suppose to protect investor deposits

Bank are supposed to protect investor deposits, as another reason why they have historically had tighter lending practices, which continues to cause growth in the alternate financing market.

There has always been a gulf between the lending practices of Corporate banking and Retail Banking. The retail banking segment is internal to banks, know as branch banking. Branches have a dollar value tied to their portfolios and this is one reason branch managers and bankers have always been cautious about their lending practices. One bad large loan can make their past due in dollars skyrocket as a percentage of their branch's portfolio.

In general, retail banking has a longer chain of command, and everyone in the chain wants to protect their backside. The individual loan officer do not want to make bad loans, the branch mangers don't want to be responsible for bad loans in the portfolio, and district and region managers do not want to have their district or region have a high past due rate and have to report this to their Senior managers.

The same applies to the Corporate lending side of the bank. The difference is that on the Corporate lending side, the loan amounts are far greater, $10,000,000 or higher, versus much lower loan amounts in the retail banking side. Where the banks get into trouble is when a very large loan is made, $25,000,000 or higher. Since this a large amount, the most senior managers of the bank are often involved, and there is no one above them to review the loans or to provide scrutiny in the loans. This is a primary reason why bank loan portfolios often get into trouble.

Bank Lending Still Difficult

Gross sales loans for business, and equipment based types of Alternative financing continue to increase in popularity as obtaining business loans from banks continues to prove difficult.

Even consumer loans backed by Real Estate remain evasive as FHA loans still account for a very high percentage of home loans approved. With decline rates continuing to be up to 95% for business loan requests at major banking institutions, the dollar value of portfolios in alternative financing options will steadily increase.

In general, traditional banks have always been the most conservative of all lending institutions, and not much has changed. There are significant abberations to this, as evidenced by the housing market crash in 2008. Banks got caught up in the hot market of the previous decade and abandoned many of their conservative requirements.

Government Super Commission Deadline Approaching

The Government's super commission on debt is fast approaching it's deadline for making a deal before automatic spending cuts take place.

It's hard to see the commission coming to an agreement, and it's hard to see the commission not coming to an agreement. The issues are the same as with the debt ceiling debacle in late July and early August. Neither side has shown more flexibility in the issues.

The problem is that if an agreement is not reached, automatic spending cuts will occur, which, in the ensuing months, will result in a significant push back by the public and at the polls.

After all, just about everyone seems to favor spending cuts. However, when the question is to cut spending that affects the person who is asked the question, the poll numbers change dramatically towards no, especially if it involves Medical and Social Security.

Apparently when people are asked if spending cuts should happen, they assume it will be spending cuts elsewhere and it will not affect them.

Some of these cuts will be severe and will affect many programs, such as Social Security, Medical, and popular programs such as farm programs, education programs, small business administration small business loan programs.

European Debt Crisis Averted

The European debt crisis has been averted, and nervous markets have picked up and recovered.

This story was not of tremendous interest on the "west side of the pond" but most European citizens and many finance ministers understood the chain reaction that could have occurred if Greece and some other countries began defaulting on their debts.

A default by Greece would force some European banks to have potentially have fully charged off the full value, or close to the full value of the debt, which could have, or would have caused tremendous losses and a major burden for many banks. A failure by any of such banks that have significant debt holdings in Greece can put the banks stability at risk. Any large bank failure will have devastating effects on the Euro markets for years.

Crisis averted for now.

Are banks hoarding cash?

Banks appear to continue to hoard cash. In many cases, the origin of this cash is either taxpayer money, or U.S. government borrowed money. Yes, banks may actually be hoarding money borrowed from China, Japan, etc..

This very likely took place due to the government bailouts of banks in 2008 and based on many news reports, continues currently. Due to the continued slow economic expansion, and now slowdown the in the current expansion, banks are still reluctant to expeditiously lend out money to both small businesses for small business loans, small business leaseback loans, as well as to individuals.

In essence, they are still hoarding cash, due to uncertainty, which itself is a drag on the economy.

The turndown rate at banks is about 90% - 95% on business loans

A major fact that commercial banks, upon applying, even with the correct loan officer at the bank, do no want you to know is that the turn down rate at regular commercial banks is approximately 95% for business loans of all types.

This is certainly not a fact they want to advertise and you will not be seeing commercials about this. It is unfortunate that small business owners go to the bank without any realistic knowledge of how hard it will be to get approved, and that the likelihood of being declined is so high. If business owners knew this, they would very likely not go to the bank in the first place. Many business owners go to the bank truly believing they will be approved.

They end up being shocked at all the requirements the bank has, credit wise, collateral wise, and financial statements wise, and the experience they have gone through afterwards, only to end up being denied, and in many cases, somewhat offended, based upon perceived advertising by those same banks prior to their visit, and perceived expectations.