Is a Specialty Lender Right for Your Business?

Six banks turned down one vet startup. But the seventh one approved the loan request. What made this bank different? Not only did it tend to approve more startup loans than rival banks, but also it was familiar with the veterinarian industry.

Working with Specialty Lenders

Lenders with specialties know the business including the financing needs, revenue potential and understand the market. Because of the lenders' knowledge of an industry, the specialty lender can also identify problem areas on the business plan and discuss growth plans. Niche lenders can also watch for financial management problems.

Working with a specialty lender has its drawbacks. They must be strict with the awarded loans because they tend to be under regulators' watchful eyes due to their narrow industry focus. Because of regulations, fewer banks may adopt or retain specialties.

Private specialty lenders aren't bound by the same regulations as banks. That said, you may want to investigate those that specialize in your industry.

Small Business Administration (SBA) Loan Problems

SBA and government stimulus program loans can be a boon with zero borrower fees and the government would reimburse up to 75 percent of a defaulted loan. (The program now guarantees up to 90 percent.) However, the unpredictability of the starting and stopping of available stimulus can leave borrowers stranded.

For example, one owner had a loan approval backed by the SBA and covered by the government stimulus program. The loan was to close at the same time the owner's lease ended. However, paperwork delayed the loan by two months. By then, no stimulus money remained. The choice: pay thousands of dollars in fees without help from the now empty stimulus package, or wait until another stimulus package comes along.

Murphy's Law kicked in. Three days after closing the loan, another stimulus came through. Business owners can't plan with the unpredictability of start and stop periods. Some have their hands tied because of commitments, leases and other time sensitive events.

Looking into Specialty and Government Loans

The government offers some good possibilities, but it can lead to expensive delays or penalties if things don't work out as planned. Working with a specialty lender can provide you with a valuable resource for your business that goes beyond the loan or other funding solution. They can identify strengths and potential problems.

You'll find specialty lenders in both banks and private financial organizations. As always, ask lots of questions when talking to a financial organization.