When Your Commercial Lending Relationship Ends: Tips for Finding an Alternative Lender

Lending relationships with traditional commercial banks can be challenging. One day your loan process appears to be in order, the next your lending relationship may be ending abruptly due to tightening bank standards or changes in market conditions. The timing of this kind of transition can be stressful, especially when economic uncertainty or the prospect of a recession looms. For businesses that rely on their commercial bank’s line of credit or other services, this shift can feel disruptive with significant implications for cash flow and operating stability.

Recent reports from the Federal Reserve Bank of San Francisco indicate that U.S. banks significantly tightened lending standards in 2023, a trend historically associated with major financial crises and one that has direct implications for businesses seeking to maintain or renew commercial banking relationships (frbsf.org).

What Might Cause a Commercial Lending Relationship to End?

Even when borrowers remain current on payments and maintain sound financials, commercial banking relationships can be disrupted by restrictive loan covenants. Recessions and economic slowdowns can trigger additional challenges, as commercial banks typically respond by tightening credit standards to reduce risk. This environment increases the likelihood of businesses tripping a covenant, often due to shrinking cash flows or reduced income during tough economic times. Higher interest rates make access to working capital and traditional loan options even more difficult for mid-market businesses.

Restrictive covenants and revenue-based benchmarks in lending agreements can make it harder for businesses to maintain compliance, prompting lenders to curtail access to future credit or call existing loans, regardless of past payment performance. The compounding effect of these pressures can create significant challenges for business owners.

Finding a non-bank lender for your loan request could be a strategic answer. Non-bank lenders can provide businesses with faster approvals, larger loan amounts, and more adaptable standards, helping maintain momentum without the inflexibility of some traditional arrangements. To explore matched loan options and lender networks, consider Cerebro Capital’s loan assessment platform.

The World of Non-Bank Lending

Today’s lending environment offers business owners a wide array of capital sources beyond the reach of traditional commercial banks. Market data collected by the Cerebro Capital team underscores a trend: businesses are increasingly embracing non-traditional financing solutions, with demand for non-bank loans steadily climbing.

Industry data from The Secured Finance Network found that asset-based loan commitments grew by 3.4% in 2023 with non-bank lenders reporting a robust 12.7% increase, reflecting the growing appetite for flexibility among mid-market borrowers (sfnet.com). At the same time, the alternative lending market as a whole is projected to surpass $1 trillion by 2033, driven by the need for quick and adaptable financing, especially among small and medium-sized enterprises.

For many mid-size businesses, the benefits of working with non-bank lenders are considerable. Non-bank financing introduces flexibility in credit evaluation, more lenient covenants, and a broader scope of possible structures, qualities that often better accommodate the realities of dynamic businesses. The ABF Journal notes that as of early 2024, non-bank lenders were responsible for financing 85% of all U.S. leveraged buyouts, illustrating the increasing dominance of private credit in middle-market lending (abfjournal.com).

Advantages of Non-Bank Lenders

• Not regulated by FDIC, allowing for streamlined approvals
• Ability to offer larger loan sizes tailored to business needs
• More flexible and creative lending structures
• Less onerous covenants, supporting businesses during transition or growth phases

These characteristics have driven increased adoption, particularly among businesses seeking alternatives to traditional lending models or needing capital in a compressed timeline. However, some analysts point to the rapid growth and less transparent practices in private credit markets as a new consideration for borrowers, underscoring the importance of due diligence when selecting a lender (reuters.com).

Common Types of Non-Bank Lenders

Non-bank lending spans a diverse array of capital providers and financing products, including:

• Asset-based lenders (ABL)
  Leveraging collateral such as equipment, accounts receivable, inventory, or purchase orders to unlock capital.
  • Machinery & Equipment Financing
  • Accounts Receivable Financing
  • Inventory Financing
  • Purchase Order Financing
• Mezzanine Funds
  Providing flexible capital that acts as a bridge between senior debt and equity, often used for growth, acquisitions, or recapitalizations, without significant equity dilution.
• Venture Debt
  Suited for high-growth firms with predictable cash flows, offering supplemental funding to extend runway before the next equity round.

Alternative lenders often process funding requests more quickly than banks, and mid-sized businesses previously underserved by traditional criteria can find funding tailored to their needs. With the surge in non-bank lending, these options have become mainstream components of the financing ecosystem.

An Extensive Marketplace of Non-Bank Lenders

Cerebro Capital provides a comprehensive lending marketplace designed specifically for mid-size businesses seeking non-traditional funding solutions. When market shifts, covenant breaches, or other unforeseen forces disrupt your relationship with a conventional lender, Cerebro Capital offers guidance and rapid access to alternative financing options that can sustain your operations and fuel future growth.

With thousands of borrowers successfully connected to lenders across more than 2,200 lending institutions, Cerebro Capital supports loans from $2 million to over $100 million. The process is streamlined. Discover your lender matches in as little as 15 minutes. Start your journey here to connect with Cerebro’s expert team and ensure your business remains resilient in today’s evolving lending environment.

It is worth noting that broader economic signals show encouraging signs: according to AP News, fewer banks began tightening lending standards heading into 2024, potentially making it easier for some businesses to access capital or refinance existing obligations (apnews.com).

Frequently Asked Questions About Commercial Lending and Non-Bank Financing