Specialty Lending Helps Niche Companies Obtain Business Loans

Years and years ago it was quite common for banks to cater to one particular industry, such as manufacturing or farming; and some of these banks still exist, although most have expanded their markets.

Now thought of as high risk, there are still some banks that do what is known as specialty lending. And the small businesses seeking business loans who have found specialty lenders are happy they did.

An article in this week’s Wall Street Journal’s Small Business, highlights one company who made some unsuccessful attempts at procuring business loans, who couldn’t have opened their business without specialty lending.

Dr. Marla Litchenberger is a veterinarian who tried to find a start-up capital to fund an emergency animal hospital in Milwaukee in early 2008. The economy was bad, and none of the conventional lenders she approached wanted to touch it. Her attorney recommended Live Oak Bank, a specialty lending institution who have made 92% of their business loans to animal hospitals. Through Live Oak, Dr. Litchenberger was able to obtain $2 million to fund the facility which opened last summer.

Another bank got involved in specialty lending by default. A spokesman for Pacific Continental Bank claims that they do not target a niche industry, but wasn’t surprised to find that their data revealed a high percentage of the professional service firms who populate the area.

Companies that pursue specialty lending may get better results if their companies are up to snuff: “Business owners who approach specialty lenders have an advantage. The loan officer already knows the revenue potential, financing and cash-flow needs of that industry, particularly in the context of the broader economy, and can advise with keen awareness of any snags in the business plan…Loan officers at specialty banks often have a sharp eye for mismanagement and are judicious about loans they issue. That selectivity is a necessity, as regulators often scrutinize banks that carry too much weight in one or two industries.”

As interesting as specialty lending may be to cash strapped small businesses, don’t expect it to be an area of growth in the near future. The high concentration of Real Estate loans made prior to the most recent economic downturn has made it unlikely that new specialized lenders will be chartered, as updated regulations concerning the financial industry come into play.

Have you had experience with specialty lending? If so, please share it here.

Susan Martin, Small Business Financial Management