If you applied recently for a loan and noticed that your bank was stingier than before, it wasn’t just your imagination. Banks have been tightening their lending standards throughout 2023 due to a variety of factors. Keep reading to learn the reasons and discover some alternatives to get the capital you need.
Why Are Banks Tightening Their Lending Standards?
As many prospective borrowers have experienced firsthand, banks are being more cautious with their loans. For prospective borrowers, this translates into higher rejection rates and extensive paperwork even for low loan amounts.
Part of the reason is that the economic uncertainty created by the COVID-19 pandemic hasn’t completely dissipated yet. Banks dislike risk, so if there’s any hint of unpredictability, their reaction is to become more watchful about the way they lend money.
Another factor at play is the series of eleven rate hikes the Federal Reserve enacted between 2022 and 2023 in an effort to tame soaring inflation.
These hikes made it more expensive for banks to borrow money from one another. In other words, money has become more expensive over the course of the last couple of years, so banks are approving only borrowers that meet very strict requirements.
Factoring is an effective financing method for businesses that need to manage cash flow and don’t have access to conventional bank loans amidst the widespread tightening of lending standards. Here are some reasons why factoring might be a good option:
- Improved Cash Flow. Factoring can provide immediate cash, which can be crucial for businesses with slow-paying clients. It allows businesses to convert their unpaid invoices into cash without waiting for customers to pay their invoices.
- No Debt Accumulation. Factoring is not a loan, so it doesn’t add to your company’s liabilities on the balance sheet. This means you’re not incurring additional debt, which can be especially beneficial for businesses that have already incurred debt.
- Creditworthiness of Customers. Factoring companies consider the creditworthiness of your customers rather than your business’s credit history. So even if your business is new or has had financial difficulties in the past, you may still qualify for factoring.
To learn more about factoring, read our previous blogs, “What Happens When a Company Factors Its Receivables?” and “Invoice Factoring vs Line of Credit: Which One Is Better for Your Business?”
ACS Factors: We Turn Your Invoices Into Cash
We are a Factoring company located in Upland, California, with many clients nationwide in the distribution and logistics corridor which includes Ontario, Riverside, Fontana, Jurupa Valley, and Moreno Valley.