Why Businesses Borrow Beyond The Banks
We are often asked, “Why would businesses with strong collateral pay 12 to 15 percent per annum—or more—to borrow from us? What’s the catch?”
In our view, there isn’t one. When structured and managed with discipline, senior-secured, asset-backed lending to smaller mid-market borrowers offers one of the most compelling risk-adjusted return profiles available to investors today. It is a clear market inefficiency that creates a sustainable arbitrage opportunity for investors.
Some say diversification is the only true advantage in investing. We would argue that disciplined access to well-secured private credit in this segment comes remarkably close.
So why does this opportunity exist?
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Current Market Conditions
The commercial lending landscape has undergone significant changes over the past decade. The number of FDIC-insured banks in the United States has decreased by more than half compared to fifteen years ago, resulting in reduced credit availability for small and mid-sized businesses.
The ripple effects of recent regional bank disruptions, including the failures of Silicon Valley Bank and others, have further constrained lending appetite, particularly in asset-intensive sectors. Many traditional lenders have shifted their focus toward larger corporate relationships, leaving a persistent gap in working capital and acquisition financing for smaller enterprises.
For Garrington, these conditions have created a favorable environment for disciplined deployment. Timing is on our side today, but cycles evolve. Our focus remains on building a portfolio resilient enough to perform through both tightening and expansionary credit conditions.
- Speed
Traditional banking relationships can take months to get through diligence. Our experience, internal credit expertise, and streamlined processes enable us to engage right away and complete thorough diligence more quickly.
For example, a company that requires immediate cash and has solid receivables can take advantage of our factoring product. We can review and complete diligence in as little as one to two weeks, allowing clients to access capital when they need it most.
Companies pursuing acquisitions often need to move quickly to secure an opportunity. Our team can match those timelines while maintaining the discipline of full diligence. By acting decisively, we are often able to identify sufficient assets to support a facility structure that works for both the borrower and the lender.
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Ability to Evaluate and Lend Against More Complex and Esoteric Assets
This does not mean riskier assets. Garrington’s underwriting philosophy is rooted in tangible value and verifiable collateral, not in stretching for yield.
Many traditional banks are unable or unwilling to engage in transactions that require customized collateral assessment or a deeper understanding of their operations. Their frameworks often rely on standardized products, balance sheet classifications, and regulatory capital constraints, which limit their flexibility.
By contrast, Garrington’s team is equipped to evaluate and structure loans secured by more specialized or multi-asset collateral pools, such as mixed receivables, inventory, or equipment with varying resale profiles. These transactions require additional diligence and ongoing monitoring, but they also present opportunities to achieve attractive risk-adjusted returns while maintaining first-lien security.
Our ability to navigate these complexities responsibly allows us to finance businesses that fall outside conventional banking parameters, without compromising credit quality.
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Short-Term Performance Issues
Traditional banks often operate under strict regulatory and balance sheet mandates that limit their ability to work through short-term challenges. When a borrower’s performance dips, even temporarily, banks are frequently required to exit those relationships, regardless of the underlying asset quality or recovery potential.
Garrington can take a more nuanced view. By conducting independent valuations and focusing on tangible collateral, we can often provide liquidity or restructuring solutions where banks cannot. In many cases, we can secure stronger collateral positions and covenant protections while supporting viable businesses through temporary dislocation.
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Relationships
Relationships are a key reason we retain clients and continue to grow our portfolio. We take the time to understand each borrower and their business. Having a lender who listens, responds quickly, and stays engaged throughout the life of the facility makes a measurable difference.
Every borrower is supported by a dedicated Relationship Manager and Collateral Analyst who remain in regular contact. These ongoing touchpoints keep our team closely connected to each business’s performance and ensure clients always have a lending partner who is proactive, informed, and ready to respond
Because in lending, understanding your client isn’t just helpful, it’s the whole point.
Understanding Risk and Yield
It is a fair question to ask whether higher rates are the result of greater risk-taking. The answer is no. Garrington’s lending model is based on asset-backed underwriting discipline, not increased credit risk.
Every facility is secured by identifiable, measurable collateral such as receivables, equipment, inventory, or real estate, typically supported by a first-lien position and conservative advance rates.
Banks are often limited by regulatory frameworks rather than actual asset quality. As an alternative lender, we can move faster and be more flexible while maintaining strong collateral coverage and strict lending standards.
Borrowers may pay a higher rate for that access and flexibility, but the credit risk remains well controlled. Our approach is designed to deliver reliable capital to businesses without compromising credit quality.
What Really Matters
When we meet new borrowers, one of the first questions we ask is, “What is important to you in this facility?” Cost does not come up as much as many think.
Most are focused on finding a lender who understands their needs, can move quickly, and provides the right structure to support their growth. The rate doesn’t matter if the capital doesn’t arrive when it is needed.
At Garrington, we find that what we offer often outweighs the cost.
The Bottom Line
Borrowers choose alternative lenders not because they want to pay more, but because they value access, flexibility, and partnership.
At Garrington, we price for risk appropriately and lend against tangible assets that can be understood and verified. The result is reliable funding for businesses and secure returns for investors, a structure built on discipline, not excess risk.
Because in lending, as in business, value comes not just from the rate offered, but from the ability to deliver when it counts.
