Lendovative Technologies and Vertical IQ have released the Accounts Receivable (AR) and Inventory Reliance Score Reports for the first quarter of 2025. These reports indicate the likelihood that a given industry sector, through its reliance on either accounts receivable or inventory, will seek financing from their financial institution or a non-bank funding source during the next six months.
The SBA Office of Advocacy now estimates that there are 34.7 million businesses in the U.S. with 500 or fewer employees. In fiscal year 2024, the SBA approved 70,242 7(a) loans totaling $31.1 billion. This is a significant increase from 57,362 loans totaling $27.5 billion in fiscal year 2023. The average loan size in 2024 was $443,000.
History shows us that many of these same businesses will require additional working capital financing as they grow, often through secured revolving lines of credit. If your financial institution wants to grow its loan portfolio, the AR and Inventory Reliance Score Reports can point to the areas of greatest opportunity.
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 employment services business now represent 43% of total assets, and the average growth rate in that industry is 7.2%. When that much of your business is tied up in accounts receivable, it does not take a high rate of growth to require short-term working capital financing. That is why the employment services sector is so popular among asset-based lenders and factoring companies.
The same logic around short-term stresses is true with inventory concentrations. Consider auto parts distributors, where inventory comprises 51.7% of total assets, and the average growth rate is 3.1%. As that growth accelerates, or declines, it will impact the need for inventory financing for many businesses within that sector.
Vertical IQ and Lendovative wish you and your organization success in 2025. We also thank the RMA for providing the source data for this initiative. If you would like to know more about the full scope of Vertical IQ and Lendovative Technology services, reach out to either organization at info@verticalIQ.com or info@lendovative.com.
Vertical IQ is a nationally recognized leader in Industry Intelligence. They deliver actionable, convenient, focused, and easy-to-digest industry insights to help you better understand prospects’ or clients’ 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.
Sources: SBA.gov, SBA Office of Advocacy