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Commercial Lending

Which Industries Will Be Asking Your Lenders for Working Capital Lines in 2020?

Patrick True
Mar 6, 2020


The most common loan request from businesses in the U.S. is a revolving line of credit. Federal Reserve Small Business Credit Surveys from the past five years prove this point. In the most recent of these, it was reported that more than 85% of credit requests are for short-term loans or lines, typically secured by business assets with a reliance on accounts receivable and/or inventory.

When you study the numbers, it is easy to se e why this type of credit facility is so popular. All you must do is look at the typical stresses on the average employer firm. In the 2019 survey, 64% of business owners reported having financial challenges. The most significant of these was paying operating expenses, followed by credit availability, debt service, and purchasing inventory or supplies.

Financial Challenges in 2019

This makes sense when you consider the demand that cash flow places on the typical business owner. Managing a business often involves balancing between accounts receivable and accounts payable. It’s a game of timing that can be even more stressful when the business’ clients begin to pay more slowly. If the business is in an inventory intensive industry, the issues are further amplified. It is really no surprise that most credit requests are initiated in order to relieve these stresses on a business.

While lenders may recognize this as the most common request, they may not realize they have the information to predict which industries will be most likely to need such financing in the short term, based on the dynamics of what is happening in the economy. The need for working capital financing is directly related to a business’ reliance on key assets, typically accounts receivable, raw materials, and inventory. The best way to predict future need is to study the forecasted growth rate for a given industry sector and compare that to the relative reliance on the these assets. Once your lenders are armed with this information, they can proactively approach the market rather than waiting for loan requests to walk in the door.

In the links below, you will find our accounts receivable and inventory reliance reports. These reports are invaluable when determining which industries are likely to seek working capital financing during the next six months. The Jack Henry Lending team develops these tools by utilizing accounts receivable and inventory data from First Research, a Dun & Bradstreet Company. They are designed to predict the potential strain placed on small businesses in over 200 NAICS codes, due to reliance on accounts receivable and inventory.

Scores are weighted measures of industry growth versus accounts receivable and inventory as a percentage of total assets. Each factor is weighted at 50% of the score. The concept is that as a business grows, its need for short-term working capital financing will be influenced by its reliance on accounts receivable and inventory. Each score is calculated by using a measure of this reliance. We review these assets as a percentage of total assets, add the growth forecast for the specific NAICS code, and multiply the result by a common factor of 10. Higher scores mean more reliance on that asset.

Just think about a business such as a staffing agency, where more than 40% of the balance sheet is tied up in accounts receivable. A growth rate of even 5% annually can drive these businesses to seek financing, whereas a business with only 10% of its assets in accounts receivable is less impacted by growth – unless they carry a lot of inventory. We hope these reports can guide your team to new lending opportunities in the months ahead.

Opportunity Score Report

Inventory Reliance Score Report


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