Measuring and Reducing Business Finance Risks

Business finance risks can be effectively measured and reduced by commercial borrowers. However this requires an in-depth understanding of commercial financing as well as a realization of the underlying importance of undertaking such a difficult task in the first place. Since one or both of these conditions are more often than not lacking, the most likely outcome is unfortunately a variation of skipping the whole issue.

A critical piece of the puzzle for finding business solutions for virtually any problem is to evaluate the costs, risks and benefits associated with the process in question. While this principle can be applied to working capital management and commercial mortgage loans, it is admittedly an arduous task for those who are not experienced at doing so. It is an ingrained element of human nature to try to fix problems without outside help. To truly complicate matters, business financing is probably more complicated than a commercial borrower might realize.

Risk measurement as applied to commercial finance decisions is simply too important to omit even when there appear to be prudent reasons to do so. Stop and ask who might be suggesting that management of financial risks is simply not necessary. Is it a banker with a vested interest in finalizing an agreement that results in fees for them? Is it a loan broker trying to close a deal? Is it an advisor who might not be the business finance expert that you think they are?

For many small businesses, the process of obtaining working capital and commercial real estate financing has begun to feel like a maze without the possibility of accomplishing a positive result. While this might seem like the perfect time for borrowers to reach out to their banker for help, the increasing number of bank failures and the reduction in bank loans to small businesses has demonstrated that banks are turning out to be the problem and not the solution in an increasing number of instances.

Such problematic circumstances should help business owners to realize that this is an excellent climate in which to be more prudent and thorough when evaluating their options. The good news in all of this is that a core group of risk factors can be measured before commercial loans are obtained. While this will not guarantee the desired outcome, it does increase the probability of avoiding unnecessary problems before they impact the long-term financial health of a business.