As capital requirements increase, the cost of capital and liquidity increase. This puts strong pressure on bank margins. When that happens some business development trends emerge and many small businesses are left out in the cold to fend for themselves. This leads business owners to Merchant cash advances, and loan sharks. In order to prevent that you need to see and know your options.
Trend #1: More fees please.
Mid-sized and large companies are getting beat to death with derivatives and other capital markets solutions and all businesses are getting flooded with the treasury management sale. It’s not really less business development focus on credit as much as it is a massive ramping up of the other stuff.
Following these strategies, banks are tweaking their client profitability models to require more “cross-sell” or non-interest income as opposed to just swooping in and doing the credit. Total relationship profitability standards are higher than in recent memory if ever. This means a potential pressure on customers to maybe buy more than what they are seeking.
SBA loans are a great example because it takes forever to get approved for one. Then you are locked into that loan until it is paid off making it nearly impossible to get financing options elsewhere. This forces businesses owners to ask for more than they need so that they have something in the bank for a later date when they need additional funding.
Trend #2: Closer monitoring of credits
Could the days of the annual review be ending? Maybe. Many banks are implementing bi-annual and quarterly reviews on even simple cash flow deals. The closer attention means that companies are struggling even more to get the funding they need when banks can only look in the rear view verses out in front to get the company the money they need to grow and not just maintain.
Trend #3: Heightened battle for credit exposure
Equipment finance groups are fighting with working capital…even treasury management department for precious, more scrutinized hold levels within the bank. And while syndication markets are frothy, always easier to sell a single investor deal than a club deal in the middle market and in some cases even with bigger companies. This can be a real problem though for asset intensive smaller business.
However there are great ABL companies out there ready to turn assets into cash or use those assets as collateral in order to purchase more assets. Most people don’t realize that their Accounts Receivable can also be turned into cash through AR financing. This is a great way to get working capital that can keep up with the growth, demand, and seasonality of your business.
Trend #4: Commercial finance rising
Don’t take the GE thing as an indication commercial finance and other non-bank sources of capital are fading. In fact, we see the opposite. GE clearly became exhausted with the flood of regulatory crap enforced now because of their size. Most commercial finance companies do not have this obstacle. Even beyond traditional senior finance, mezz, second lien and other debt providers are growing rapidly and the run of private equity has been almost meteoric over the last few years. All that is happening because banking is not meeting the magnitude of the need. Not because they don’t want to, but because the regulation has them in handcuffs to a point. And that creates an opportunity for commercial finance resources outside of traditional banking to emerge.
SouthStar Capital is a great example of one of these companies:
Southstar Capital is a nationwide commercial finance company with our corporate offices in the Southeastern United States. We provide a full suite of working capital solutions, including Accounts Receivable, Purchase Order and Equipment Financing for new and existing businesses. We base our lending decisions on the value of your company’s assets, not your personal or business credit score/rating. SouthStar specializes in financing businesses that have been turned down by a bank. Our goal is to be your preferred and trusted source of working capital needs now and in the future.
If you ever wanna chat about how to take the trends of banking that are hurting your business and trade them for options to help grow your business then give us a call or email.
843-277-6449 or firstname.lastname@example.org