Banks aren’t what they were a few years ago. Crippled by a high-rate environment and an inflationary economy, the banking industry is tightly holding onto their deposits instead of lending the cash to small businesses.

One door may have closed, but another one opened. The slowdown in bank lending has pushed businesses away from traditional lending sources and toward non-bank funding options.

National Business Capital’s diverse lender platform makes finding the right non-bank option for your business easy and efficient. With one application, you unlock all the money you qualify for, then select the right option alongside guidance from your dedicated Business Finance Advisor.

Continue reading for more information about the state of bank lending in 2023 and what entrepreneurs can do to continue growing in this climate.

Why Aren’t Banks Lending?

There are a number of factors for why banks aren’t lending.

  • First, they are seriously constrained by regulators who watched the bank runs on Silicon Valley Bank and Signature Bank in early 2023 and decided to tighten the amount of money banks need to hold in reserve.
  • Second, banks are voluntarily holding more money in reserve because they expect delinquencies to rise as rates get more expensive and consumer finances become strained.
  • Third, they are uncertain of whether a recession might be on the horizon, which would push the rate of delinquencies and defaults even higher.
  • Fourth, regional and small banks, which typically lend to small and medium-sized businesses, are watching their significant loans to commercial real estate companies come undone. With work from home continuing to look likely for the foreseeable future, commercial real estate, especially in downtowns, is looking very shaky.
  • Fifth, rates are not certain to remain stable, with the Chair of the Federal Reserve recently signaling that rate increases are not off the table, meaning all the above could become even more severe for banks.
  • The sixth reason is related to interest rates – banks’ cost of capital is rising along with interest rates as consumers are demanding higher yields on their deposits. Not only does that take liquidity out of banks in the form of higher payouts, but it also means that banks are seeing outflows to other banks that are paying higher interest.

All of these factors (and more) are combining to make banks – notoriously risk-averse as they are – even more cautious. They are prioritizing their existing relationships to reduce their risks, and even among those relationships, they are focusing on the very largest companies, which are even lower risk.

Small and medium businesses that used to have warm relationships with their banks and bankers are being left out in the cold as those very same bankers turn away from them. In many cases, they are not only not issuing new loans but are demanding lines of credit be paid down with very little notice or concern for their former customers.

Entrepreneurs are shifting their focus to the world of non-bank lending as a lifeline for capital in an environment where banks won’t open their doors. Not only are they offering access to immediate funding in large amounts, but creative solutions are allowing entrepreneurs to unlock opportunities and keep their businesses moving forward.

When Will Banks Start Lending Again?

It’s uncertain how long the current credit conditions will persist, but borrowers can expect a higher rate environment for at least the next few years. After the 2008 financial crisis, the economy took years to recover, but it wasn’t some light switch where everyone immediately knew the conditions had improved. Instead, people suddenly found themselves in the middle of a booming economy.

In the words of National Business Capital’s CEO, Joseph Camberato, “The winners of this market won’t be the businesses that held tightly onto every dollar; it will be the businesses that refused to slow down.” Once the economy improved, the businesses that kept pushing forward had already built their foundation to scale, and those who mimicked the bank’s risk-averse behavior were playing catch up. In 2023, it’s safe to say that the cycle will repeat itself.

How Have Non-Bank Lenders Filled the Gap?

Banks and credit unions are subject to the dictates of the economy, whereas non-bank lenders operate in the private sector and can make decisions as they choose. Most non-bank lenders don’t deal in consumer/business deposits, either, which allows them much more freedom and flexibility when lending.

Non-bank lenders have gained immense popularity in the last decade, but the current lending environment has made them even more attractive. Here are a few of the ways entrepreneurs are leveraging non-bank options, even if they already have existing bank financing:

  • Leveraging cash flow – instead of assets – for funding
  • Accessing additional capital outside of an existing facility with a subordinated debt solution
  • Negotiating their terms to align with their opportunity/challenge

Non-bank lenders are much faster, more accessible, and – most importantly – are offering access to capital right now. They don’t need assets, and they don’t always require you to pay off your existing financing.

If you have a current low-rate bank loan, but your bank isn’t offering enough capital to stay relevant, there are opportunities to access additional funding without refinancing or taking out a new loan entirely.

How Can National Business Capital Support Businesses?

Business doesn’t stop just because banks slowed their lending. If you want to maintain momentum, our award-winning team can match you with the most competitive offers you qualify for within our diverse lender platform. National Business Capital’s network of lending partners offers a variety of lending products that you can tailor to your unique circumstances, including subordinated options that can offer additional capital with current loans.

Banks won’t lend, so try us instead. Complete our easy application to get started with our team. We’re here to make your opportunities come to life.

Joe Blog Bio
About the Author

Joseph Camberato

Joe Camberato is the CEO and Founder of National Business Capital. Beginning in 2007 out of a spare bedroom, Joe and his team have financed $2+ billion through more than 27,000 transactions for businesses nationwide. He’s made it his calling to deliver the educational and financial resources businesses need to thrive.

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