How To Secure Funding When a Bank Closes Your Business Loan or Line of Credit

eCapital Corp

Last Modified : Jan 23, 2024

Fact-checked by: Bruce Sayer

The economic outlook for 2023 could be better. More than two-thirds of economists at 23 major financial institutions expect the U.S. to have an economic downturn and most likely slip into a recession early in the year. In this environment banks are monitoring debtors closely.

Banks are taking action to protect their lending portfolios by reviewing and monitoring facilities closely. Any business loan or line of credit (LOC) that threatens the bank’s profitability may be subject to being recalled. A recall means the total balance would have to be paid and the LOC reduced to zero. In this challenging lending environment, small and mid-sized businesses must be prepared to either replace the LOC or scale back to weather the loss of credit.

Businesses navigating the current economic environment require nothing less than resilience, determination, and adaptability. This includes having a planned set of actions to take if you lose your bank financing. This article outlines critical steps to take to secure funding if your bank closes your business line of credit.

Five steps to take

Losing your bank financing is not the end of the world, but it can be devastating if your business does not manage the situation well. Here are the first five steps you should take immediately if the bank closes your business LOC:

1. Stay in communication with the bank. Keep them informed of any changes or developments in your business and respond promptly to requests for information or clarification. Maintaining a good relationship with your lender is essential even if your financing account has been closed.
2. Find out why your financing was closed. Ask the bank for a detailed explanation of why your LOC was closed. This will help you understand the reason and whether there are any steps you can take to resolve the issue.
3. Review your financing agreement. Check the terms of your loan agreement to see if the bank has the right to close your financing.
4. Seek professional advice. If you are still trying to figure out what to do, consider seeking the advice of a financial professional, such as an accountant or lawyer. They can help you understand your options and make the best decisions for your business.
5. Consider your options. You may have several options depending on why your account was closed and the terms of your financing. These may include the following:

• Negotiating with the bank to try and resolve the issue.
• Restructuring your business to reduce costs or downsize operations to ensure you can continue to pay your bills.
• Looking for alternative financing options.

Typically, the first and best option is to work with the bank to resolve issues and maintain a good relationship. But if a resolution isn’t possible, the next best option is to seek alternative financing options to rapidly secure the funding needed to support day to day operations.

Alternative financing options

Fortunately, banks are not the only lenders available to offer financing options to businesses. Alternative lenders can provide funding for companies that require non-bank financing solutions with less stringent credit requirements. Utilizing the latest financial technologies (fintech), these alternative lenders can qualify borrowers with underperforming financial histories and lower credit scores. Featuring accelerated qualification and fast onboarding processes, alternative lenders can respond immediately to fill the funding gap created by the loss of traditional financing from a bank.

Alternative funding options typically include the following:

• Invoice factoring
• Asset based lending
• Visa commercial cards

Time is critical

If a bank closes your business loan or line of credit, time becomes critical. Typically, outstanding balances are required to be repaid, and credit is reduced to zero within ten days of the bank giving notice. You must act quickly and decisively to prevent a cash flow crisis by pursuing all avenues to reinstate or replace the funding immediately. This urgency means taking the above mentioned steps, not sequentially but concurrently. As you negotiate with your bank and consult with professionals, conduct research of alternative lenders with fintech capabilities to learn about your options and to prepare for a rapid transition if necessary.

Research alternative lenders immediately

Alternative lenders that utilize the latest financial technologies offer the best and quickest solution to small and medium-sized businesses needing immediate access to funding. Accountants and lawyers will likely include these alternative lenders as recommended service providers to replace the bank financing you’re about to lose. Since time is of the essence, don’t waste it!

• Research alternative lenders immediately
• Select a few to interview
• Choose an alternative lender well suited to manage your funding.
• Start the qualification process and negotiate terms.

With leading alternative lenders, nothing is binding until a lending agreement is signed – an action you’ll take only when you are confident that the lending arrangement is the best option.

By acting quickly and initiating the qualification process, an alternative lender will be positioned to set up your account, onboard your team, and start funding within a few days to avoid any gaps in your cash flow.

What to look for when choosing an alternative lender

On the surface, most alternative lenders offer similar features and benefits:

• Easy qualification
• Fast onboarding
• Bespoke financing with flexible terms

But after going through the struggles associated with losing your bank financing, choosing the right alternative for your situation is critical. So how do you select the best alternative lender to support your business? The answer is synergy. Select a lender you feel will work best with your organization to ensure seamless, dependable funding you can count on. While interviewing lender candidates, look for the following:

• Immediate funding
• A knowledgeable lending team that understands your business and industry
• Dedicated customer service
• A robust online account management portal for transparency and reporting
• Increasing credit limits to match your company’s recovery
• Multiple services and products to access even more sources of capital
• Deep pockets to ensure ongoing funding

The first and most critical lender capability to look for is immediate funding – can the lender qualify you, onboard your team and start funding within days? Next, determine how well they will work with your organization. You’ll recognize the best alternative lender to meet your needs by how you feel once the interview is over. If the lender displayed knowledge of how your business works, expressed expertise in your industry, responded directly to questions with informative answers, and provides a track record of meeting client expectations, you’ll feel a sense of trust. If they utilize advanced technology to maximize speed of funding and show evidence of dedicated customer service, you’ll feel confidence in their ability to deliver uninterrupted funding as needed. The next step to take is to investigate reviews, testimonials, and case studies to verify the lender’s brand value. Now you’re ready to choose a lender.

Conclusion

Many commercial banks are offloading risky portfolios because of clients’ deteriorating financial performances. A call from the bank announcing the recall of your business loan or LOC is a call to action! Keep lines of communication open with the bank, maintain a positive relationship, and attempt to resolve issues. Reach out to your accountant, business lawyer and consultants to seek advice. But, most importantly, don’t wait on others to decide your company’s financial fate – take matters into your own hands and act immediately! Start looking into alternative funding options now and prepare your organization for a quick transition to a more flexible funding solution.

eCapital Corp

eCapital Corp. is committed to supporting small and middle-market companies in the United States, Canada, and the UK by accelerating their access to capital through financial solutions like invoice factoring, factoring lines of credit, asset-based lending and equipment refinancing. Headquartered in Miami, Florida, eCapital is an innovative leader in providing flexible, customized cash flow to businesses. For more information about eCapital, visit eCapital.com.