Traditional lenders often encounter businesses that nearly qualify for a loan but fall short due to various financial hurdles. These "Almost Bankable" clients have strong potential but don’t quite meet standard lending criteria—yet.
By finding solutions to support these businesses now, commercial bankers can turn these prospects into long-term clients. Here’s why these businesses sometimes fall short—and how AR financing, including invoice factoring, asset based loans, and DIP financing can bridge the gap while preserving banking relationships.
These are businesses that may not fully meet traditional lending criteria for a variety of reasons.
Some companies have layered ownership—such as holding companies, international partners, affiliates with dissimilar ownership or multiple investors.
Challenge: Traditional lending institutions have difficulty confirming who owns and controls the business, which creates compliance and risk challenges.
AR Financing Advantage: Although the business must be U.S.-based, the primary focus when determining AR financing options is often the creditworthiness of the business’s customers and the nature of its accounts receivable, allowing for more flexibility when evaluating ownership structure.
Start-ups or early-stage businesses may have strong demand and a growing client base, but they often lack a proven financial track record.
Challenge: If a business does not meet the requirements for years in business or profitability, it may not be easy to approve a traditional loan.
AR Financing Advantage: If the business has eligible accounts receivable, AR financing may be an option to allow them to leverage the AR to unlock working capital without having an extensive track record.
Fast-growing companies often exceed the limits of their initial credit facilities, and their capital needs can change quickly.
Challenge: The fast growth can create unpredictable cash flow, which causes underwriting challenges and results in limitations in traditional lending.
AR Financing Advantage: Regardless of the growth pace, AR financing offers adaptable, flexible funding that scales with revenue. This is because the ongoing availability of funding is based on the quality and amount of the company’s accounts receivable rather than historical cash flow, so working capital can keep up with a growing company’s needs as its AR grows.
A business may struggle to comply with the financial covenants stipulated in its loan agreement.
Challenge: Even minor breaches can limit access to additional bank capital or trigger default provisions, even if the business remains viable in the long term.
AR Financing Advantage: AR financing typically doesn’t require covenants like traditional loans. Since funding is based more on the strength of the receivables than balance sheet and income statement ratios, businesses can access working capital solutions with fewer limitations.
Some industries carry regulatory, reputational, or compliance concerns.
Challenge: Traditional lenders may have internal credit policies or regulatory pressures that can restrict or prohibit exposure to specific industries regardless of a company’s financial performance.
AR Financing Advantage: Since funding is based on customers' creditworthiness, not industry classification, AR financing provides capital access for businesses in various industries that may not be supported by traditional funding.
This occurs when a business relies heavily on a small number of customers for the majority of its revenue.
Challenge: High revenue concentration can raise concerns about stability, continuity, and revenue diversification, making it harder to secure traditional financing.
AR Financing Advantage: While banks may see concentration as a red flag, AR financing providers focus on the quality of the receivables and the creditworthiness of companies being invoiced.
When a business is experiencing financial distress and losing money, various factors can contribute, such as declining sales, rising costs, or operational inefficiencies.
Challenge: Financial distress—whether from rising costs or operational inefficiencies—may prevent traditional loan approval.
AR Financing Advantage: Working capital can support businesses during recovery phases, getting them back on track and stabilized.
“Almost Bankable” doesn’t mean “never bankable.” With the proper support, many of these businesses will become ideal candidates for traditional financing. Commercial Funding Inc. collaborates with bankers to help their clients achieve a better financial position while maintaining the existing bank/client relationships. We offer invoice factoring and asset-based lending options that align with your clients' immediate needs, providing them with the working capital they need to stabilize or grow.
If you’re working with a client who fits one of these scenarios, let’s help them bridge the gap!