Get ready for the pendulum to swing the other direction.
The banking environment has been a very competitive market for the last several years, which has worked to the borrowers advantage. However, now with things tightening in the financial marketplace, accessing commercial credit is only going to become more and more difficult.
The time is right to review what to do when the bank says “no.” It doesn’t matter whether it is a decline for a line of credit renewal or a new line of credit request. There are options for business owners that can’t get credit from the bank or just need to pay off a loan that is due. So, where else can you go when you need a business credit line or loan for your business?
There are plenty of options. Many business owners may not even realize there are lenders who are regulated, like banks, and lenders who are not regulated. What does this mean? Simply put, they don’t have the same lending constraints. The typical loan covenants and ratio requirements of a non-regulated lender are more liberal, making it easier to stay within the good graces of your lender.
This non-regulated sector of business financing is oftentimes referred to as asset-based lending. An asset-based lender can help businesses that don’t have the typical two years of historical profit and positive cash flow. This means that they can help with young growing businesses as well as long standing companies who have hit that eventual bump in the road.
An asset-based lender can rely more heavily on collateral than the past performance. This is the same collateral that a bank uses: accounts receivable, inventory, equipment or commercial real estate equity. The difference is that there may be losses in the last few years or perhaps even current losses, tax delinquencies, negative cash flow or just a limited history.
Asset-based lenders erupted from the huge need for interim lenders. Their marketplace is primarily helping with start-ups, as well as being the temporary solution while a business is regaining profitability – a resource to go to when the bank wants to be paid off.
With the increasing pressure and scrutiny of loan performance that the banks have to endure by the regulators, the changes coming down the pike are unavoidable.
Positive cash flow and adequate working capital are the essential lifeblood of a successful business. Asset-based lenders may be the right solution for many business owners as well as banks.
Suzy Oubre is principal of Alliance Commercial Credit Group. She can be reached at 877-594-9423, suzy@alliancecomcredit.com or www.alliancecomcredit.com.
