Businesses across every industry need access to loans at some point. Certain industries are more likely to need greater amounts of capital for equipment and growth.
However, small businesses make up a substantial portion of loan applications, and small business financing options are at an all-time high. Each year, roughly half of all small businesses apply for loans. As your business continues to grow, you will likely find yourself in need of funding. This article can provide insight into the top industries that have access to loans as well as why they need them.
Transportation and Trucking
The transportation industry may seem like an unlikely contender, and that may be true for asset-based companies. This type of transportation company typically includes delivery companies, freight haulers, and luxury providers, such as limousine companies. However, non-asset-based businesses, such as logistics providers and freight brokers, are considered excellent candidates for several types of loans, including:
- equipment financing,
- invoice financing, also known as accounts receivable financing or factoring,
- venture capital,
- and fuel card providers.
Equipment leasing is typically used for purchasing vehicles, which are high-risk collateral. However, accounts receivable financing is a viable and lucrative option for both parties because both asset-based and non-asset-based transportation companies rely heavily on invoicing.
Construction and Renovation
Construction is a diverse and lucrative industry; however, it also requires a heavy investment because starting expenses are extremely high. Because of the varying sizes, risks, and needs of construction projects, there are lenders who specialize in relatively any type of project you can think of, including commercial, residential, and medical and dental facilities. Several well-known banks and credit unions specialize in large loans for companies that deal in major commercial projects, but there are plenty of lesser-known lenders for smaller projects, such as home renovations.
In this industry, to be able to access loans for companies, contractors can expect extensive documentation. The paperwork begins before the project starts, continues regularly as construction happens, and finishes with even more documentation. Maintaining a good relationship with lenders and staying up to date on payments relies heavily on the paperwork process.
As small businesses grow, they often need to access funds to meet the operational demands of expansion. With a few exceptions, all small businesses have access to loans, but certain industries are more likely to receive funding at higher approval rates. Healthcare, manufacturing, software development, and lodging industries are examples of businesses with the most access to small business loans. These and other industries, such as marketing and retailing electronics, are considered less risky to lenders because of their potential for profitability and their history of high revenue.
- Physicians’ Offices: Doctors that open their own practices have several funding options. They often receive specialized medical practice loans, short-term loans, SBA 7(a) loans, business lines of credit, and equipment funding.
- Software Development: Because of their potential for profitability and heavy use of invoicing, software development companies often receive invoice financing for cash flow, SBA 7(a) loans, lines of credit, and credit cards.
- Lodging: Hotel companies often need regular renovations and new equipment. For this, they typically receive short and medium-term hotel loans and bridge loans.
- Retailing Stores: Small retailers typically receive SBA loans, lines of credit, cash advances, and retailers loans for inventory and working capital.
- Marketing and Other Creatives: Marketing and other creative companies are typically small businesses that need financing for startups. They usually find easier access to funds with venture capitalists, partner financing, grants, crowdfunding, and SBA loans.
- Manufacturing: Companies that manufacture food, electronics, and machinery and have good credit are most likely to receive SBA 7(a) loans and other types of manufacturing loans.
Out of all the above small businesses, doctor’s offices are seen as one of the lowest risks for lenders. Dentistry and auxiliary health services did not make the list but are also typically well-funded parts of the healthcare industry.
Top Reasons These Businesses Need Loans
As one might assume, the most important element of a business loan is the reason it is needed. Business owners are expected to present a plan of action that includes an overview of their business as well as their plans for the money. Below are the most common reasons the aforementioned businesses seek financing.
Expansion is the ultimate goal of any business, and the process can be expensive. Approximately twenty percent of businesses list expansion as their reason for financing. Funds can be used to open a new branch, launch a new product or service, buy new equipment, become a franchise, or start onboarding new employees.
Business equipment needs can encompass everything from large manufacturing machinery to office supplies. Nearly 10 percent of business owners use the funding to replace outdated equipment or fix broken equipment at some point.
Working Capital and Cash Flow
The most common reason for business loans is working capital. Roughly half of all loan applications state that the funds are intended to cover working capital. This means that businesses need funds to pay for regular operations, such as payroll, utilities, and supplies. Additionally, companies need cash flow to stay afloat.
It goes without saying that inventory is a vital element of any company specializing in manufacturing or retail. Nine percent of companies list “to replenish inventory” as a purpose for funding. Keeping shelves stocked is a viable reason to apply for a loan.
Factors Separating These Industries From the Rest
The success rates of all the industries mentioned in this article testify to the reason that they have heavy access to business loans. Here are just a few specifics that make them appeal to lenders:
- a strong proof of revenue,
- evidence of profitability and potential growth,
- excellent business credit scores and personal credit scores, in the case of small businesses,
- and experience in the industry.
You can use this data to compare your business with those in these industries. What do you have in common with them? Are you looking to spend capital on the same things? Then you can apply that information to help you decide which financing option is right for you.