How Non-Bank Lenders Can Win with “Productized” Finance Solutions

Non-bank small business lenders face the challenge of distinguishing themselves from both traditional banks and fintech startups. One effective strategy to stand out and attract new business is to move away from general financing offerings and instead focus on specific product solutions that address consistent client needs. This targeted approach can lead to deeper market penetration, increased customer loyalty, and ultimately, more profitable lending relationships.

The Product-Focused Approach: Tailored Finance Solutions

Developing finance products that address specific, recurring client needs can set a lender apart from generalist competitors. Let’s explore this approach using two examples:

1. Case Study: Jobsite Facility Financing for Construction Companies

Construction companies often face challenges in financing temporary structures and facilities needed for large projects. A non-bank lender could develop a specialized product with the following features:

• Flexible terms aligned with project timelines

• Quick approval process understanding the time-sensitive nature of construction projects

• Structures that allow for easy scaling up or down based on project phases

• Inclusion of both hard assets (e.g., portable offices) and soft costs (e.g., setup and transportation)

Benefits of this approach:

• Demonstrates deep understanding of client needs

• Reduces competition from generalist lenders

• Allows for more accurate risk assessment and pricing

• Creates opportunities for repeat business across multiple projects

2. Case Study: Inventory Financing for Seasonal Retailers

Seasonal retailers, such as those in the holiday decoration or swimwear industries, often struggle with cash flow due to the cyclical nature of their business. A tailored inventory financing product could include:

• Flexible repayment terms that align with the retailer’s sales cycle

• Higher advance rates during peak ordering seasons

• Option to convert to a line of credit during off-seasons

• Built-in grace periods for unsold inventory

Benefits of this approach:

• Addresses a critical pain point for seasonal businesses

• Provides a competitive edge over traditional lenders with rigid terms

• Allows for building long-term relationships as the retailer’s trusted financial partner

• Enables more accurate risk assessment based on seasonal patterns

Implementing a Product-Focused Approach

To successfully implement a product-focused lending strategy, non-bank lenders should consider the following steps:

1. Market Research:

• Identify underserved needs or recurring financial challenges in specific industries

• Analyze competition in the chosen product niche

• Conduct surveys or interviews with potential clients to understand pain points

2. Product Development:

• Design financial products that address specific pain points

• Create flexible terms that align with use-case needs

• Develop streamlined underwriting processes for the chosen product focus

3. Team Building:

• Hire or train staff with relevant expertise in the product area

• Develop partnerships with industry associations or experts related to the product

4. Marketing Strategy:

• Create targeted marketing materials that speak directly to the chosen product niche

• Attend industry-specific trade shows or events where potential clients might be found

• Develop content marketing that demonstrates expertise in the financial solution offered

5. Customer Service:

• Train customer service teams on product-specific issues and common client concerns

• Offer specialized advisory services related to the financial product

6. Continuous Improvement:

• Regularly solicit feedback from clients using the product

• Stay informed about industry trends and evolving needs related to the product

• -terate on the product based on market feedback and changing client needs

Challenges and Considerations

While a product-focused approach can be highly effective, lenders should be aware of potential challenges:

• Limited market size compared to general lending

• Need for specialized knowledge and potentially higher product development costs

• Difficulty in diversifying risk across multiple product types

• Potential for product obsolescence if the market needs shift

Conclusion

By adopting a product-focused approach, non-bank small business lenders can differentiate themselves in a crowded market. This strategy allows for deeper client relationships, more accurate risk assessment, and the ability to command premium pricing for specialized financial solutions. While it requires investment in research, product development, and specialized knowledge, the potential for increased market share and customer loyalty makes it a compelling strategy for lenders looking to grow in the competitive small business financing landscape.

Lenders who successfully implement these targeted product approaches can position themselves not just as financial providers, but as valuable partners in their clients’ success, addressing specific financial needs with precision and expertise. This approach fosters long-term relationships and sustainable business growth, as lenders become known for their specialized solutions rather than generic offerings.

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