Would an Alternative to Industrial Banking Right for Your Business?

by Kiara Swiatek Apr 16, 2022

There are a variety of banking options available to small businesses, including some alternative banking solutions such as industrial banking. What is industrial banking? What makes industrial banking different from commercial banks? Can industrial banking be a viable way for your small business to secure a loan? Throughout this article, we will discuss what industrial banks are, who they lend to, what makes them different, and how they can help you as a small business owner grow your company.

What are Industrial Banks?

Industrial Banks and Lending Companies began their start in the early 1900s. During their inception, these industrial banks offered banking services to their employees and then later ventured into the realm of commercial banking, gathering clientele in the business sector of the growing American economy. Businesses thrived as banks continued to assist small business owners in starting their companies, some even still existing today due to their initial success. Businesses utilize industrial banks for real estate finance and investing, 401k business funding, 401k business loans, and SBA loans for commercial properties. Some lending giants emerged out of this period, including the following well-established and familiar banks such as:

Goldman Sachs
American Express
Merrill Lynch Bank USA
Morgan Stanley Bank
GE Capital Bank
And GMAC Bank

In the twenty-first century, these industrial banks are pillars of the business financial community, offering loans and other banking services to companies and businesses of all sizes. Small businesses would have very limited options for gaining loans without these industrial banking giants. According to research published by the U.S. Small Business Administration, bank lending to small businesses is on the rise throughout the nation. While traditional lending is harder to obtain from these big banks and financial institutions listed above, there are other more local options for smaller businesses, making it easier for many potential business owners to find funding and start their dream business.

What Makes Industrial Lending Different from Commercial Lending?

The main difference between industrial and commercial banking relates to the services they offer and their overall structure. This entails the way that industrial banks request loan repayments, the essential services they offer their customers and clients, what type of loans they service, how their branches operate, and more.

Industrial Banking Breakdown

Loan repayment period: Anywhere between fifteen to twenty years, paid on an agreed-upon reoccurring basis.

Basic banking for consumers: Industrial banks do not offer checking accounts. However, they do tend to provide a line of auto loans or credit card payment processing.

Loan servicing: Typically, loans are paid in installments.

Branch Type: Many industrial banks do not have traditional branches and operate with a smaller, more highly trained staff to operate their loans and daily banking.

Commercial Banking Breakdown:

Loan repayment period: Financing and repayment periods are typically shorter periods and paid on an agreed-upon reoccurring basis

Basic banking for consumers: Customers can open savings, checking, and money market accounts at most commercial banks; think of them as your neighborhood bank where you do your checking and savings accounts.

Loan servicing: Commercial banks earn interest from loans they offer to their customers like mortgages, personal loans, and business loans, allowing people to obtain loans essential to their daily lives and not catering to businesses.

Branch Type: Commercial banks have many branches located throughout the country, often in metropolitan areas. These banks offer walk-in lobbies and staff to assist with questions and money processing.

The most significant difference between Industrial Banking and Commercial Banking is the state-by-state regulations. Currently, only seven states in the United States allow for industrial banking institutions. Most of these types of banks, including their headquarters, reside in Utah.

Is Industrial Banking a Viable Option for Your Small Business?

Industrial banking is viable for most small businesses, especially those looking to build business credit in 30 days and startup business loans with no revenue. Traditional banks often deny many small business loan applications making it easier for small businesses to use industrial banking since they are less strict. Industrial banks have fewer regulations to follow, allowing them to make approvals where other banks can't

Are Industrial Banks Safe to Use?

While there is no oversight from the Federal Reserve like commercial banking, industrial banks are safe. These institutions do have some regulations and are insured by the FDIC. There is also oversight from the chartering state. Currently, only Utah, California, Colorado, Nevada, Hawaii, Indiana, and Minnesota charter industrial banks within their state limits.

Why Small Businesses Use Industrial Banks for Their Loans

You need access to money for your business quickly.

Like a short-term loan from an online lender, many alternative financing products can arrive in as little as one to two days. This can help if you're in a short-term cash squeeze. This is hard for commercial banks to offer to their clientele.

You want a simple, quick application process.

Most applications for industrial banking can be completed online and quickly, without the need for organizing and submitting mountains of financial documents or a business plan. These requirements will vary from lender to lender, with the general overall process more manageable than when working with commercial banks.

You don't meet the bank's qualifications.

Banks have stricter regulations for loan approval and often move a bit slower than alternative lenders. If you need financing to expand your business but don't meet the bank's requirements, you may want to explore industrial banking for your small business. While their qualifications are easier to manage, this does not mean that everyone will automatically qualify for industrial loans.

So, Is Industrial Banking Really A Legit Option for You and Your Business?

Industrial banks aren't a bad option for small business funding. It may be easier to get approval. However, terms and rates may be higher. Still, business LLC credit is a must to get the most out of your business funding options. Doing the proper research for you and your small business is always the most vital step when looking for financing options.