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Finance & Accounting, Small Business Loans

What Is an Industry-Specific Loan?

Industry-specific loans are financial products designed specifically for the needs of businesses in certain industries. The types of available loans, approval criteria, collateral options and other significant features of the loan will vary depending on the industry. Regardless of your industry, it’s important to understand the unique benefits of industry-specific loans.

Key Characteristics of an Industry-Specific Loan

Focused On Your Expenses

When you apply for a business loan, the lender typically wants to review a detailed business plan outlining how you are going to spend the funds. However, if you are working with a lender who is not familiar with your industry, they may fail to understand why certain expenses are so important – or even critical – to your business.

When you work with an industry-specific lender, you usually don’t have to worry about these potential misunderstandings. Instead, you get to work with a lender who really understands your particular industry. For example, if you are opening a new restaurant and you plan to have a long wine list as one of your signature offerings, you may need to invest tens of thousands of dollars into building and stocking a wine cellar.

Unfortunately, if you are working with a lender who doesn’t understand the restaurant industry, they may not see this expense as important, and that can lead to your loan getting rejected. However, if you are working with someone who understands the restaurant industry inside and out, that can increase your chances of success.

Industry-Specific Collateral Options

In many cases, putting up collateral can boost your chances of getting approved for a loan. Another advantage of industry-specific loans is that these types of lenders are often willing to accept collateral. A prime example of industry-specific collateral is inventory. These loans are ideal for retailers or wholesalers, as they allow these business owners to use assets they have on hand to secure funding. In many cases, these lenders may be renting space or equipment, and as a result, they may not have any other significant assets they can use as collateral. However, when they work with an industry-specific lender who understands how to use floating assets (assets that change value throughout the life of the loan) as collateral, that can provide direct advantages to their company. Namely, it gives these business owners access to working capital they may not be able to access in other cases. If these retailers or wholesalers opted to work with a lender who was not focused on their industry, they may not receive this unique type of collateral option.

Approval Terms Keyed to Industry Growth

Business lenders look at your personal credit history and financial statements, and they also take into account your business’ financial forecasts and revenue history. However, lenders can’t just look at these details; they also have to take into account what is happening in your industry.

Imagine that a home builder and a toy maker both apply for a loan. All of their financial details are the same, but one industry is booming while the other one is failing. In this example, it helps to have your industry taken into account, and industry-specific lenders definitely consider that information.

Understanding of Niche Elements of Your Industry

On the flip side, however, there may be times where your industry is slowing or shrinking but your business is likely to succeed. To continue with the above example, imagine a toy maker is applying for a loan. General lenders turn him down because overall consumer trends in the toy industry indicate that kids prefer electronics and video games to traditional toys. However, the toy maker has a unique product as well as a marketing plan that is designed to reach a niche group of parents focused on wooden toys, Waldorf education methods and screen time limits. In cases like these, an industry-specific loan can help because these lenders understand the importance of looking at niche occurrences in an industry rather than the overall industry as a whole.

Knowledge of Unique Needs

In addition to understanding your industry’s potential for growth or your ability to tap into an overlooked segment of your industry, industry-specific lenders also understand the unique needs in your industry. For example, if you run an auto body shop, you may need a loan to pay for your team to get special training for a new type of repair technique.

 

If you are applying for a business loan, don’t just work with general business lenders. Instead, look for lenders who are knowledgeable about your industry and its unique needs. This can increase your chances of approval and make the lending process easier to navigate.

 

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Kabbage Team

Kabbage is here not only to provide access to the small business funding you need, but to also help you grow your business through free marketing tips, webinars, tools and more. Is there something you'd like us to cover or want to get your small business featured on our blog? Send us a note at content@kabbage.com.