The SBA Office of Advocacy reports that 2.5 million new business formations occurred between 2019 and 2022 — a number that has further expanded in 2023. Commercial lenders would be wise to study this trend to see how it may impact small to mid-sized business (SMB) loan demand in the coming years.

While most U.S. small businesses are one-person firms, a considerable number of these new entities will eventually become employer firms, impacting their need for financial services. In fact, the U.S. has never seen this high rate of new business formations, which may have been the result of the so-called “Great Resignation” along with the sheer numbers of both baby boomers and millennials who are either delaying retirement or leaving corporate life for entrepreneurial endeavors.

As students of both industry evolution and lending trends, Vertical IQ and Lendovative Technologies have come together to take a closer look at how this small business growth could impact demand for commercial lending. With this goal in mind, we are proud to introduce the fourth quarter AR and Inventory Reliance Score Reports as a free service to lenders across the United States. We are also thankful for the RMA data that helps to make these reports possible.

This is the second quarterly installment of the AR Reliance Scores and the first release of the Inventory Reliance Scores. Each report highlights the top industries that are likely to seek short-term working capital financing from lenders during the first several months of 2024.





How are the scores calculated?

Think of each score as a stress test. First, we study both accounts receivable and inventory as a percentage of a company’s total assets. Then we weigh that percentage against the growth rate being experienced in the industry. By merging these two numbers, we can estimate the short-term stresses on a specific industry.

For example, accounts receivable for the average security guard and patrol services business represent more than 41% of total assets, and the average growth rate in that industry is 5.4%. When that much of your business is tied up in accounts receivable, it doesn’t take a very high rate of growth to require short-term working capital financing. That is why the vertical is so popular among asset-based lenders and factoring companies.

Much the same is true with inventory concentrations. Consider heavy-duty truck manufacturers, where inventory comprises over 45% of total assets and the average growth rate is 4.3%. As that growth accelerates, or declines, it will likely impact the need for inventory financing in the sector.

Vertical IQ and Lendovative will continue to produce these reports each quarter during 2024 to monitor trends. In the meantime, we wish you and your organization a successful conclusion to this year. Thanks once again to RMA for providing the source data for this initiative.

>> If you would like to know more about the full scope of services offered by Vertical IQ or Lendovative Technology, reach out to or

Vertical IQ is a nationally recognized leader in Industry Intelligence, delivering actionable, convenient, focused, and easy to digest industry insights to help you better understand prospects’ or client’s business challenges. Lendovative Technologies provides collateral management and document archiving solutions for financial institutions. It is a core mission of both organizations to promote SMB activities in the United States.

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