Sometimes a particular financing opportunity, especially when there are hard assets involved, can have many different business lending models that apply to it.
Even within a single lender there can be multiple groups that could potentially consider your deal. As an example, a major bank can have a business financing group, a corporate banking group, a subordinate debt group, a leasing division, an asset based lending group, and so on.
While there are some demarcation lines between the different lending groups, there still is some over lap and many times confusion as to who you should be talking to or what you should be considering.
The reason this exists is that lending models tend to be very specific in terms of what they will consider and how deals can be structured. They are also rather inflexible so as to maintain a certain amount of integrity in the lending policies that have been established in the first place. Following the rules is a big part of effectively managing risk and straying outside of the lines is not.
So for each different business lending application, there tends to be a different business models that are going to apply to provide a frame work from which money can be advanced to customers.
The challenge to the business owner is that each business is somewhat unique to any other business in terms of size, age, credit, asset composition, management, etc.
So many times, the financial profile of a given business can attract interest from different lending models. The hard part is trying to figure out which ones apply and which ones would be the better fit for the business at a given point in time.
Remember that business lending models are also somewhat fluid in that they can be discontinued, or make changes to their lending policies and practices. For instance, if a business lender has made a large number of loans and placed a significant amount of dollars into certain assets of a certain industry or sector, the lender may stop issuing capital at some point in order to keep its overall portfolio in balance. So a lending program that was available last week is no longer available through the same lender this week for a similar application.
The same can be said for loss concentrations in a particular sector like we’ve recently seen in the automotive industry where business lending all but dried up for any one requiring capital from that business sector.
The best way to approach the market at any given time is to work with a business financing specialist who knows the lay of the land and can quickly apply your requirements to the market at a given point of time so that you’re always focusing on the most relevant options available and not wasting time on shifting sands.