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The Growth of Small Banks

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By Marc Adelson

Recently, the Wall Street Journal highlighted the fact that small banks are beating out big banks and growing faster on an annualized basis.

Part of the reason for this small bank growth is they have more flexibility when it comes to taking on risks. Small banks appear to be much less constrained by financial regulations than their large counterparts. However, without the right experience, taking on riskier loans and deal structures could have negative consequences.

The lending atmosphere is rapidly changing as banks are feeling tremendous pressure to put capital to work. This is causing banks to structure products targeted at small and middle- market companies that just don’t make sense for them. However, without the expertise that comes with helping companies in distress, banks are once again taking on too much risk in structuring and pricing transactions. These types of specialty financing vehicles need to be done by institutions and executives who have experience doing these types of deals and understand how to structure a facility to ensure it’s a win for the borrower as well as the lender.

If a small or mid-sized business needs alternative/asset based financing, here are a few things to consider before choosing an asset-based lender or factor:

1) What is the lender’s track record? How have they helped similar companies?

2) What are the terms they are willing to provide and why?

3) What is the type of facility they are suggesting and why?

4) What is the time frame to begin receiving capital?