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Tightening Credit Market Has Companies Looking for Different Working Capital Options

A less than favorable economic outlook is one of many reasons bankers say they are tightening credit for commercial and industrial loans, according to a recent Federal Reserve senior loan officer survey.

Worried that commercial borrowers may not be able to repay loans with a slow-growing economy, banks have enacted stricter standards to ensure repayment. In fact, more than 54 US bankers surveyed said their institutions have placed stricter standards on business loans and lines of credit.

With less access to working capital, many small- and medium-size businesses will be forced to turn to other sources, such as friends and family, private equity, and high-priced online loans. There are many alternatives to consider when financing your business, says Hitachi Business Finance President Mike Semanco.

“Banks may be the first option business owners think of. But looking past traditional lending is critically important. With so many options, business owners must do their research and evaluate all of their options.”

For instance, Semanco says that looking for state grants, pitch competitions and asset-based lending may be helpful.

“Asset-based lending is pretty much what the name implies: lending against your assets. Two specific types – A/R financing and lines of credit – have the time tested ability to sustain and grow a business when traditional methods of financing aren’t available.”

A/R financing is the sale of accounts receivable or invoices at a small discount to receive immediate cash. An asset-based line of credit is based on various resources, such as accounts receivable, inventory, equipment, or real estate. Asset-based lending has been viewed as a stepping stone to bank financing, with loans focused on the value of the asset and not solely on a company’s cash flow. Today, with an unstable oil and energy market, along with tighter credit restrictions, it’s not necessarily a stepping stone as much as it is a bridge.

Semanco offers a few examples of how real-life companies recently used asset-based lending to spur growth:

• $5 million line of credit to a company in the very constricted and regulated oil and energy industry. With a new source of funding, the firm was able to focus on growth and the development of new business.

As with most business owners, the company president did approach traditional lenders, but was unable to meet their increasingly strict requirements. With a recommendation from a trusted advisor, the company sought an asset-based loan. After a thorough review of their business and balance sheet, the company was able to secure a line of credit now that allows them to maintain a comfortable cash flow.

• $1 million in A/R financing to a distributor of hunting gear and equipment. With a rapid expansion plan in place for this year, the company was in need of working capital financing to support such growth. With $1 million in A/R financing, the company plans to purchase new inventory, bring on additional staff, and updated marketing initiatives can be developed and deployed.

If a small business can secure bank financing to meet their working capital needs, they should do so, suggests Semanco. However, the current economic climate may be making that more difficult, and with the availability of asset-based lending, companies should look beyond traditional lending to make payroll, secure new clients, and evaluate expansion projects.

About Hitachi Business Finance
Hitachi Business Finance provides easy, flexible financing to support a company’s continued growth and success. A division of Hitachi Capital America, the company offers A/R financing, lines of credit, and government contractor financing. Based in Rochester, Michigan, with offices in Atlanta, we provide cash flow solutions for small- to-mid-size companies across the United States.

Learn more by visiting or calling (248) 658-1100.

About Hitachi Capital America Corp.
Hitachi Capital America Corp. is an independent, diversified leasing and financial services company providing financing to commercial businesses and other Hitachi companies in the United States. We offer a variety of asset-based financing solutions with a focus on truck, trailer, and floorplan financing; trade financing; medium/small ticket financing; structured financing; vendor financing; and asset-based lending.

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