Should You Apply for an Industry Specific Loan?

02 Feb, 2017 / Comments: Comments Off on Should You Apply for an Industry Specific Loan? / By

Obtaining funds for your business sometimes requires a little creativity. Even after you get your business off the ground, there may still be a need for more money. Before you apply with any lender on the market, consider the benefits of an industry specific loan. These loans do not come from the general lenders on the market, but rather those who work specifically in your industry.


What is an Industry Specific Loan?

An industry specific loan is one provided to you by a lender who primarily deals in your industry. This lender is less likely to offer loans to those in a wide variety of businesses. For example, a lender who funds a construction company, restaurant, and tax business is not industry specific. On the other hand, a lender who primarily deals with construction companies is industry specific. This lender knows the ins and outs of the construction industry and will better understand your application and your need for money.


Understanding Your Business Operations

A lender who deals with almost any type of business likely does not have specific information about any industry. Sure, they might have a basic idea, but their in-depth understanding probably lacks. This could hurt you if you need money for something specific that might not seem like a big deal to the lender. A bank who deals specifically with your industry, however, will understand why you need the money and will know the right questions to ask to determine your risk level. They look at your business with a fine-toothed comb rather than generalizing it with all other business types.


Understanding the Industry’s Future

Sometimes your credit worthiness should not be based solely on your business’ credentials. Yes, you have to have timely payments, enough resources, and a good understanding of the business to succeed. However, without a positive forecast for the industry’s future, your business could fail no matter how regimented your business acumen may be. An industry specific lender will have a handle on what the industry is expected to do and will factor this into your application.


Determining Appropriate Collateral

If you ask any general lender what they accept as collateral, you will probably receive the answer “property.” What if a business doesn’t own any property, though? This is the case for many businesses who rent rather than purchase. Are they out of luck? It is possible with a general lender that you could be out of luck. However, with an industry specific lender, they may be able to look for other types of collateral depending on the business you operate. They may also be more willing to offer you options, rather than operating as a “textbook” lender who only follows the exact written rules.


Understand Exceptional Needs

No two businesses have the same needs, especially when they are in different industries. An industry specific lender may be able to look at those needs and understand them. A lender who does not know your business very well may write off the expenses as unnecessary and deny the loan. A very detailed explanation of the niche you are in and the reason you need the funds could still fail with a lender who just doesn’t know the business.


Industry specific loans offer many benefits. You may have to look harder for them and deal with several lenders before you find one who knows your business enough to accept your unique circumstances, but the work is worth it. If you want to not only have a higher chance of approval, but also have someone who truly understands what your business needs are, you are better off working with a lender within your industry.


William Mahnic
William Mahnic is a Finance Professor at Case Western University and has spent more than 20 years in the finance industry before becoming a professor. Mahnic has appeared as a commentator on both TV and radio talk shows including NPR, Crain's Cleveland Business, WKYC 3 and The Washington Post. He has been interviewed in BusinessWeek, Wall Street Journal and The Los Angeles Times.

Comments are closed.