Nontraditional lenders: What your clients need to know to thrive

Silicon Valley Bank’s demise in 2023 precipitated a watershed moment for the banks in the commercial lending market. In the months since SVB’s rescue, traditional banks have, understandably, tightened their lending standards to shore up their own balance sheets, assuage regulator scrutiny, and protect shareholder value.

Companies entering a turnaround, or those in the midst of one, are experiencing the fallout from these efforts. In a best-case scenario, banks are scrutinizing distressed businesses more closely before extending a loan, typically through stricter covenants and additional disclosure requirements.

Often, though, companies seeking financing for a turnaround find themselves frozen out of traditional credit markets, unable to obtain the capital they need to survive. The reasons for this are often varied — some organizations are considered too small and the return is not worth the risk, or their performance and long-term prospects may be in question. Other times, lenders decide to stop serving companies in certain industries. Banks may also be unwilling to extend further financing to borrowers that broke covenants included in earlier loans.