The Case for Offering AR Financing Before Your Commercial Clients Find It Elsewhere
Key Takeaways:
- 24% of small businesses sought financing through an online lender in 2024, up from prior years, driven by speed, perceived approval likelihood, and lack of collateral requirements. Many of those applicants had an existing bank relationship.
- Online lenders consistently receive the lowest satisfaction scores in the Federal Reserve’s annual Small Business Credit Survey. In 2023, only 15% of online lender applicants reported satisfaction with their lender. Small businesses aren’t leaving for better service. They’re leaving because their bank doesn’t offer what they need.
- AR financing addresses the specific working capital gap that pushes commercial clients toward outside lenders. Community banks that offer it can keep that business in-house, generate fee income, and gain real-time portfolio intelligence that traditional credit products don’t provide.
- The bank that offers AR financing first has a durable advantage. Once a borrower has built a working capital program with an outside lender, bringing them back requires more than a competitive rate.
Where Commercial Clients Are Going
The Federal Reserve’s 2024 Small Business Credit Survey found that 24% of small businesses sought financing through an online lender in 2024, a share that has grown steadily over recent years. The primary reasons applicants chose online lenders were expected likelihood of approval, speed of funding, and lack of collateral requirements.
These aren’t businesses abandoning the banking relationship out of preference. Online lenders receive the lowest satisfaction scores of any lender type in the Federal Reserve’s annual survey. In 2023, only 15% of approved online lender applicants reported net satisfaction with their experience, with high interest rates and unfavorable repayment terms cited as the most common complaints.
Commercial borrowers are going to online lenders and non-bank factoring companies because they need a working capital product their bank doesn’t offer. They accept higher costs and lower satisfaction in exchange for access. That’s not a strong competitive position for the outside lender, but it’s a problem that won’t resolve itself unless the bank acts.
The FDIC’s 2024 Small Business Lending Survey found that bank competition with non-bank fintech lenders is growing, with small banks increasingly competing with credit unions and alternative lenders for the same commercial borrower base. The window to get ahead of that competition by expanding the product offering is narrower than it was five years ago.
Why AR Financing Is the Product They’re Looking For
The working capital gap that drives commercial clients to outside lenders is structural. B2B businesses like staffing companies, transportation firms, manufacturers, oilfield services companies, technology services providers complete work, issue invoices, and wait up to 90 days to collect. Meanwhile payroll, vendor payments, and operating costs demand immediate attention.
A traditional line of credit partially addresses this, but it has a fixed ceiling that doesn’t grow with the borrower’s revenue. It requires the borrower to manage repayment actively. And it gives the bank a snapshot of the borrower’s working capital position at origination and renewal, with limited visibility in between.
AR financing works differently on all three counts.
The credit line is secured by outstanding invoices and grows naturally as the borrower’s invoicing volume grows. There’s no reapplication process when revenue scales. Repayment flows through a lockbox arrangement as the borrower’s clients pay their invoices. The bank is paid first, automatically, with each cycle. And because our program connects directly to the borrower’s accounting system, the bank has continuous visibility into invoice volume, debtor concentration, aging trends, and payment behavior.
This is the product that outside lenders are selling to your commercial clients right now. The difference is that when an outside lender provides it, the bank loses both the revenue and the visibility. When the bank provides it, both stay in-house.
The Relationship Advantage Community Banks Have — And Can Lose
Applicants that sought financing at small banks were more likely to be fully approved than those that sought financing from other lenders, according to the Federal Reserve’s 2024 data. Community banks consistently outperform large banks and online lenders on approval rates, and they consistently outperform online lenders on borrower satisfaction.
But it only protects the institution when the bank can actually serve what the borrower needs. The FDIC’s survey found that nearly all community banks emphasized in-person, high-touch practices for developing relationships with commercial clients. Those practices build trust. They don’t retain business when a borrower has a working capital need that the bank’s product mix can’t address.
The risk is that the relationship advantage gets eroded one product at a time. A commercial client goes outside for AR financing. That outside lender now has daily visibility into the client’s business. Over time, the outside lender becomes the de facto financial partner for working capital decisions, even while the community bank holds the deposit account and the real estate loan.
The bank that offers AR financing first keeps that visibility inside the institution, where it can inform underwriting decisions, surface early warning signals across the portfolio, and deepen the commercial relationship at exactly the point where growth-stage borrowers are most financially engaged.
What It Takes to Get There First
Community banks that want to offer AR financing programs don’t need to build the infrastructure from scratch. Turnkey AR lending programs give banks access to the technology, monitoring, and operational support required to run a compliant, profitable AR lending program without adding significant internal overhead.
The practical requirements are worth understanding:
- Technology: The program requires a platform that can connect to borrower accounting systems, monitor receivables in real time, and generate the reporting the bank needs to manage the portfolio. Building this internally is expensive. A turnkey solution eliminates that barrier.
- Monitoring: AR portfolios require daily oversight. Invoice aging, debtor concentration, and payment pattern changes need to be flagged and addressed in a timely way. This is where most banks lack internal capacity, and where a dedicated support team provides the most value.
- Underwriting familiarity: AR financing underwriting is different from conventional commercial loan underwriting. The primary credit analysis focuses on the quality of the borrower’s customers, not just the borrower’s own balance sheet. Banks new to AR lending benefit from a partner with established underwriting expertise.
With the right program in place, the bank can offer AR financing to existing commercial clients without disrupting the core relationship, without building new internal infrastructure, and without taking on operational complexity that the bank isn’t positioned to manage.
