Commercial Property Precautions for Small Businesses

Commercial property represents a large and important piece of most national economies. On a worldwide basis there has been an unusual amount of uncertainty and fluctuation in most of the economic areas involving real estate during the past five years. At the start of the banking bailout period which began during 2008, it initially appeared that residential real estate was the primary problem area to be addressed. In part this was due to the fact that the financial derivatives and other real estate investments which precipitated the banking crisis were largely residential properties. However this turned out to be a "tip of the iceberg" situation in which commercial real estate was a major investing piece lurking beneath the surface.

It is no longer a surprise for most observers to hear that commercial property is now experiencing its own set of problems in the continuing aftermath of an economy that is still very fragile. While these difficulties are serious enough to warrant concern, the segment of commercial real estate that is suffering the most appears to be commercial property owned by small businesses. There are several reasons for this, and here are three of them:

    For a typical small business, commercial real estate financing is intertwined with their other small business loans and working capital management.
    Small businesses rarely have the same choices for commercial mortgages as larger companies do.
    Most banks have been undergoing significant restructuring, and small business financing no longer plays a prominent role in most banking institutions.

Throughout the bank bailout and in subsequent years, banks have been the primary recipients of financial support from the government. In turn the bankers were rightfully expected to turn around and lend these funds to companies of all sizes. When this did not happen to any significant degree, the smaller businesses ultimately suffered the most because of the factors just identified. This has already caused ongoing financial problems for most commercial borrowers and is expected to be a continuing obstacle regardless of political events and election outcomes. Rather than just accept an outcome that is likely to be negative and adverse to the financial health of their livelihood, small business owners can take certain precautions such as the following:

    Reduce operating expenses and business debt rather than relying on more commercial property loans to fix the problem.
    Explore new marketing strategies to increase sales.
    Evaluate the increased use of negotiations to decrease the costs of not just commercial real estate financing but also a wide variety of other expense areas involving suppliers and lenders.
    The possibility of firing your bank and banker cannot be ignored any longer.

Because each company will have a unique combination of problems and resources, it is possible that the above precautions will not be practical or relevant. It will nevertheless be prudent for each small business to evaluate these commercial property precautions as well as other realistic business and real estate solutions.

Stephen Bush is Chief Executive Officer of AEX Commercial Financing Group and is a small business finance expert. Steve provides business solution strategies for small business owners throughout the United States and Canada. Please contact Steve for practical and candid advice about commercial real estate financing, working capital loans and small business planning.

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