Replacing Business Financing from Banks


Many of us have service agreements to repair and replace air conditioners, furnaces and cars if they are not working. What are small businesses supposed to do if their commercial financing from a bank no longer works?

There are some effective small business finance alternatives to commercial bank loans. While success will be different for each business, there are several business financing choices available to consider as effective replacements for working capital financing and commercial loans previously obtained from banks which are no longer providing business finance services to small businesses. Three of them are briefly described below.

Small business owners are likely to hear reports from multiple sources about the increasing difficulty in obtaining business loans from banks. As a result, a prudent alternative is for commercial borrowers to explore whether there are effective commercial finance options to replace bank financing.

One of the chief ongoing criticisms reported by many small business owners is the failure of most banks to satisfactorily meet their routine daily commercial loan needs. Even if there has been a long and prosperous working relationship with a bank, very few small businesses have the financial means to overlook the current business loan shortfall exhibited by most banks. One common (but incorrect) response is that nothing can be done to replace the traditional source of commercial financing although it does seem that the reality of less bank financing is acknowledged by many commercial borrowers. For most small businesses needing to explore immediate ways for replacing bank business loans, the three examples provided below are illustrations of practical small business finance strategies readily available to them.

  • Working capital loans
  • Accounts receivable financing
  • Credit card receivables factoring

Among the most useful options to replace business bank financing are working capital loans from non-bank sources that do not require commercial property or other assets as collateral. This kind of business financing might be needed to replace a line of credit which is being reduced or eliminated by a traditional bank. Perhaps a business borrower needs new business funding to buy supplies or inventory. A reliable source of working capital is a key ingredient for continued success for even the most successful business. Traditional banks might need to be replaced by more effective commercial lending sources because as noted both here and in media reports, banks are rarely doing an adequate job of filling this critical role.

Accounts receivable financing is another practical business finance choice to replace bank financing. To bridge a cash flow gap between sales and payment from customers, this form of receivables factoring can be helpful. While this is by no means a new form of business financing, the major use has typically been by large corporations. Commercial borrowers are rapidly learning to adopt this effective financial strategy due to banks exiting their previous active role of providing small business loans.

A commercial funding approach generally referred to as credit card receivables factoring or business cash advance will also be a useful alternative for businesses which regularly accept credit cards from their customers. By allocating a portion of future credit card processing toward repayment, it is a way for businesses to receive cash now and gradually repay the amount provided.

None of the working capital financing options just noted are totally free of potential complications or problems. At the same time, it should be noted that the sudden lack of reliable bank financing for small business owners is itself a major complication and problem requiring a timely solution. As with any business service, the advantages and disadvantages need to be thoroughly reviewed before finalizing any new arrangement for business financing.


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