You May Think Your Business Credit Is Maxed Out – But Is It?
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Fact-checked by: Bruce Sayer
It’s a common situation and a growing trend – more businesses are struggling to meet financial obligations as harsh economic conditions persist. Companies that two years ago were stable, with good performance levels and adequate business financing, are now facing mounting financial pressure to remain solvent. Many have exhausted cash reserves, depleted assets, and hit a credit wall as conventional lenders tighten the credit market. If this state of affairs represents your business situation, you may think your business credit has maxed out – but there are viable funding options yet to be tapped.
Resilient business owners are learning to restructure their business financing with fast, flexible funding options to survive, grow, and prosper as competitors face the threat of insolvency. Learn how alternative business financing can provide the financial flexibility your business needs to access more working capital and increase credit limits.
Things were good – what happened?!
2021 was a year of transition following a global health crisis. A significant rebound in economic activity brought industries back to life. The cost of money was historically low, and pent-up consumer spending was unleashed. Things were good – what happened?!
As the economy picked up steam, inflation began to take hold. 2022 saw the first of a series of interest hikes designed to curb inflation. But the cost of goods kept rising, as did the cost of money. Businesses began to struggle as conditions hardened.
2023 has become a year to survive. Interest rates have continued to grow, reaching 5.25%, and inflation remains high. Many are still anticipating a recession later in 2023. Adverse conditions were further amplified in Q1 when three major US banks collapsed. Traditional lenders are nervous – they’re tightening the credit market in a move to mitigate risk. As lender oversight increases, many businesses are facing diminishing performance levels.
Things may look scary, but there is a path back to stability through improved cash flow and increased credit limits.
How do you increase credit limits for your business?
You start by transitioning to a more flexible financial structure.
The global alternative lending market is expected to grow at a 22% CAGR rate, reaching $8.2 billion by 2028. Why is this growth happening at a time when access to conventional lending is drying up? The answer is accessibility and flexibility!
Alternative lenders are ready, able, and willing to fill the credit gap conventional lenders are creating. Featuring easy qualification requirements and increased speed of funding, alternative lenders are providing diverse avenues to access capital. SMBs struggling with restricted credit from conventional lenders are discovering new ways to release capital from untapped assets.
How do alternative lenders increase access to credit?
The principal difference between conventional and alternative lending is predictive risk vs assessed security.
Qualification for conventional lending is based heavily on the financial performance and credit history of a company to predict the borrower’s ability to repay the loan. This long-standing norm for assessing borrower risk involves a lengthy and tasking qualification process to approve credit. Once a credit line or business loan agreement is entered into, conventional lenders monitor financial performance regularly to assess the borrower’s ongoing ability to pay.
Alternative lenders use a more effective and straightforward approach to approving credit by basing approvals on the quality of the business’s assets used for collateral. Qualification is fast, simple, and easy to obtain if your company has equity in assets such as accounts receivable, inventory, equipment, and machinery.
What are commonly used alternative funding options for SMBs?
In general, alternative lenders offer many funding options compared to conventional lenders. Some focus on the consumer market, offering mortgages, personal loans, advance paycheck services, and more. Others serve only commercial businesses – the best of which have experience, expertise, and established reputations in the industries they serve. Alternative lenders specializing in SMB financing often rely on a combination of funding options to maximize a company’s access to credit.
The following three financing options are commonly utilized by leading alternative lenders to develop a flexible business financing structure:
Asset-based lending (ABL): This credit facility primarily leverages a company’s assets as collateral. It provides a large influx of cash to meet immediate financial obligations, support a turnaround strategy, or invest in growth. ABL facilities feature flexible borrowing base certificate structures to maximize access to credit. These covenant light loan agreements can be tailored to align with trade cycles, seasonality, and customer base requirements to meet the individual needs of a business.
Invoice factoring: This mainstream funding option is designed to accelerate cash flow. It is the selling of accounts receivable invoices at a discount in exchange for immediate payment. As products or services are delivered, invoices can be submitted for financing. Funding is transferred within 24 hours of the invoice being received for verification. The more invoices submitted, the more funds become available. This cash flow solution provides fast access to working capital without incurring debt. Qualification is based on the creditworthiness of the borrower’s customer base, not on the credit history of the borrowing company.
Equipment refinancing: This is a financing option used to convert long-term assets into cash in hand. It is a specialized form of asset-based lending used to leverage the equity tied up in working equipment such as CNC machines, fleet equipment, and more. Leading alternative lenders specializing in commercial financing can offer high evaluations on equipment most other lenders won’t even consider for collateral.
How to transition to a flexible financial structure?
Research alternative lenders experienced in commercial financing. The industry leaders are generally the most visible and easy to find using an online search engine such as Google. Use a search term such as “invoice factoring for commercial businesses”. Scan through various lender websites for proof points such as experience, flexible funding products, and reputable service. Check customer reviews to gauge the level of satisfaction from the lender’s existing clients and verify your search by going to independent review sites, such as Trustpilot.
The best alternative lenders have simple online forms or easy-to-find phone numbers to contact company representatives. Reach out to arrange an interview and ask questions.
- Does the lender have experience in your industry?
- Do they understand your business?
- Do they have the resources and expertise to solve complex situations?
- Do they have easy-to-manage tools and systems?
- Is there an online account portal for account transparency and management?
- Do they have advanced technology to simplify and accelerate the speed of funding?
- Do they have the expertise to transition your funding from bank financing seamlessly?
This last question is critical to ensure a successful transition to a flexible financial structure. Leading alternative lenders have industry connections and extensive experience working with banks and other lending institutions to arrange seamless transitions.
Once you have selected a new lender, allow time for the transition. Your new lender will connect with your existing lender to buy out your facility and set up a new account. If you have chosen well, the process will be quick and issue free without funding gaps.
Conclusion
Businesses with conventional business financing are entering a perfect storm. Credit is being restricted, loans are being recalled, and insolvency is rising – things are getting ugly! Loan covenant restrictions and the cost of money are increasing when diminishing business performance levels are being carefully watched by heightened lender oversight.
But, working with an experienced and reputable alternative lender provides the financial flexibility to access more working capital and increase credit limits.
A flexible financing structure creates agility. A company able to act quickly to finance and enact evolving strategic decisions will better align with changing conditions to help overcome operational challenges and return to profitability.
If your company has suffered restrictions and hit your credit limit with a conventional lender – look, call, and switch to a flexible alternative lender experienced in financing your industry.
How eCapital Helps Fund SMBs
eCapital has provided flexible alternative financing solutions to SMBs in over 81 industries since 2006. Our team of industry experts works to thoroughly understand your business model before recommending tailored business financing solutions to meet your capital requirements. Whether it’s a rapidly deployed invoice factoring facility, a flexible asset-based loan, or a mix of financing solutions to meet your needs, our skilled, dedicated, and friendly team structures specialized alternative funding as unique and distinct as your business.
For more information about how our experienced team supports businesses’ capital requirements through all economic conditions, visit eCapital.com.
ABOUT eCapital
Since 2006, eCapital has been on a mission to change the way small to medium sized businesses access the funding they need to reach their goals. We know that to survive and thrive, businesses need financial flexibility to quickly respond to challenges and take advantage of opportunities, all in real time. Companies today need innovation guided by experience to unlock the potential of their assets to give better, faster access to the capital they require.
We’ve answered the call and have built a team of over 600 experts in asset evaluation, batch processing, customer support and fintech solutions. Together, we have created a funding model that features rapid approvals and processing, 24/7 access to funds and the freedom to use the money wherever and whenever it’s needed. This is the future of business funding, and it’s available today, at eCapital.
James Poston
James is an experienced product expert in receivables financing, trade finance including purchase order financing, and asset-based lending. In his role, he oversees eCapital’s sales strategy by driving business development and creating unified revenue generation processes across our organization. Utilizing his experience in developing strategic relationships and nurturing strong networks, James is positioned to expand our company’s market footprint and industry associations.
Prior to joining the eCapital organization, James served as Executive Vice President and Sales Director for Bibby Financial Services Canada. During that time, he participated in all aspects of the organization including operations, credit and finally business development where he was named a 40 under 40 Award recipient by Secured Finance Network.
James is a Chartered Professional Accountant and Certified Management Accountant and holds a Bachelor of Economics degree with concentrations in international relations and political economy from McGill University.