Promising Prospects


Five niche markets that offer commercial lending opportunities that shouldn’t be overlooked

By Terry Renoux

Commercial banking relationships often prove to have broader implications than what may appear on the surface, because they present additional opportunities for building long-term community partnerships. However, many community banks are challenged to identify and target the low-hanging fruit of new industries in their markets. Right now, there are five niche industry verticals that community banks should consider pursuing to find new lending opportunities.

1. Health care. Perhaps most obvious, new lending opportunities lie in health care and all of the related industries supporting health care that continue to grow and experience rapid change. Current growth drivers are twofold: the naturally aging baby-boomer population and the complexities of changing policies (the Affordable Care Act and insurance regulations and their impact on the rising costs of health care). These factors are further amplified by issues surrounding Medicare and Medicaid.

All things considered, health care providers are subject to much longer waiting periods for receiving payment and fewer numbers of procedures being covered in full. This means health care providers must carry the burden of any uncovered claims or slower paid costs, giving way to a serious strain on their cash flows. Health care, as an industry, is growing in double digits annually and is expected to continue this trajectory as the population continues to age healthily.

Community banks should be able to assist health care providers in several ways, but most notably these companies will need short- and long-term borrowing capabilities. Transaction-related products, asset-liability management and risk management solutions can further support office efficiencies and foster a healthier financial environment.

2. Energy. A second industry experiencing growth right now is energy and all its related support services companies. The general observation is that energy encompasses oil and natural gas drilling, although numerous supplementary industries are coming into existence to support the growing domestic energy playing field (the United States’ effort to become energy independent). Drilling has created new jobs and, consequently, a demand for cash as the needs for goods and services emerge. In some instances, this industry is boasting annual growth of specific businesses well over 100 percent; this creates a tremendous challenge on business owners to keep up with financing.

Through 2016, the output of domestic oil and gas drilling with related activities is forecast to grow at an annual compounded rate of at least 12 percent. Financial institutions regionally touching the energy play market—such as those in Midwestern, Southwestern and even Northeastern states—are naturally positioned in this high-growth environment.

3. Trucking. Trucking and transportation also offer widespread geographic opportunity for community banks to fulfill basic funding needs. These companies often require short-term working capital, based on the fact that industry demand and payroll will sharply be driven by the significant cost of fuel. On average, transportation companies are paid in 38 days and can have approximately 30 percent of their assets tied up in accounts receivable at any given time. When the need arises to expand their operations, they tend to seek out options for working capital financing.

The trucking and transportation industry can be a bright spot for banks wanting to stabilize their loan portfolios. Mostly run as small businesses, there are more than 440,000 for-hire U.S. motor carriers and in excess of 700,000 private carriers—all fairly equally disbursed throughout the country, in almost every market.

4. Staffing. Economic conditions and employment rates have forced a rush on staffing companies, another niche market in need of working capital and financing. Staffing agencies need assistance with shorter-term cash flow; up to one-third of their assets are generally locked up in accounts receivable. While those accounts receivable can pay out fairly quickly, weekly or biweekly payroll for temps when the agency is still awaiting payment from a customer creates cash flow challenges. If an agency is still awaiting payment from a customer, it does not prevent the agency from still needing to pay temps and other seasonal workers.

The demand for skilled, temporary workers may boost employment as well as revenue among staffing firms in coming years. Staffing Industry Analysts’ latest long-range U.S. forecast suggests that a compound annual rate of 4.6 percent growth through 2022 should be expected for the temporary help services market, and that both professional and industrial occupations will have a greater interest to use temps.

5. Manufacturing. Manufacturing just recorded its fastest rate of improvement in four years, according to the Purchasing Managers Index released in February. Domestic manufacturers are producing better outputs and continuing to hire in support of resource needs. This creates a demand for financial support to fund and sustain growth. Like in staffing and transportation, manufacturers carry roughly one-quarter of their total assets as receivables to self-finance sales. Quick pay and volume discounts can be offered to increase cash flow by reducing the receivables time frame, which can average 40 to 55 days.

Terry Renoux ( is group president of lending solutions for ProfitStars, a Dallas-based division of Jack Henry & Associates providing products and services spanning financial performance, imaging and payments processing, information security and risk management, retail delivery, and online and mobile.