Today’s Bank & Non-Bank Relationship

On Jul 11, 2024

More businesses are struggling to meet their banking covenants due to the impact that COVID, supply chain issues, and labor shortages have had on their sales. It is Rosenthal’s opinion that more businesses will continue to seek non-bank financing solutions in 2024 and we expect a highly active year ahead.

Are traditional banks and non-banks competitors or partners? 

Very simply, non-banks do not have a depository relationship with their clients. They are a collateralized lender, securing accounts receivable and/or inventory, and providing loans against those assets. From a perception standpoint, the market always views banks and non-banks as competitors. But in Rosenthal’s case, we have had strong relationships with more than 30 banks over our 86+ year history. We receive a lot of referrals from banks because they are interested in securing their depository relationships.

For instance, for a company in default of its banking agreement, the bank may no longer be willing to provide a loan to that company, but they also do not want to lose the entire relationship. In these cases, the bank often brings in a non-bank lender they have worked with in the past with a proven track record, so that the client can continue to be properly serviced and is left well cared for. Once the client is rehabilitated financially, they can return to the bank, and it is a win-win for all parties involved. 

Can you give some examples of how banks and non-banks have worked together in the past?

Some regional banks consider international receivables as ineligible. Non-banks would factor these international receivables, while the bank maintains its existing domestic portfolio and secured interest. In addition, a non-bank’s purchase order financing program can provide incremental transaction-based inventory financing that works in tandem with other bank and finance facilities.

What are some of the benefits that banks can benefit from by working with a non-bank lender?

At the very least, banks would maintain the depository and all treasury-related aspects of their relationship and might pick up additional industry referrals by referring non-bank solutions not otherwise offered in the past. In such a competitive market, it is important to diversify the offering.

Do both traditional banks and non-banks provide financing options to exporters?

Yes, factoring is a liquidity and risk mitigation tool that allows exporters to get paid at shipment on international sales. Exporters can receive up to 90 percent of the invoice value, less a small discount at shipment of goods. Factors provide a robust in-house credit and collections department to seamlessly secure credit lines for clients, meaning the exporters do not bear the risk of buyer non-payment.

Asset-based lending facilities can benefit private and public companies that export products or services on terms, across a wide range of industries. Loans are based on collateral, including commercial accounts receivable, inventory, intellectual property, real estate, and machinery & equipment. Both banks and non-banks are appointed as lenders under EXIM’s Working Capital Guarantee Program (WCGP).

By Peter Clement, SVP International Financing, Rosenthal & Rosenthal, Inc.

To access more business news, visit NJB News Now.

Related Articles: