Freeing up credit capacity for small businesses

Satisfying security deposit requirements without a letter of credit

March 20, 2019 - In the 10+ years since the financial crisis, small business lending has materially changed. In June 2011, big banks approved less than 10% of business loan requests. According to the Biz2Credit Small Business Lending Index - which reports the loan approval rates of small business financing - big banks ($10B+ in assets) approved just 27% of small business loan requests in December 2018. Despite the 17%+ increase compared to 2011, many of these businesses are left without a source of credit, or less credit than they would like to effectively run their business. The case is not much different when evaluating small bank approval rates. Although it has increased over the past year, small banks still leave over half of applicants denied and searching for financing.

Since today’s business owners are facing challenges getting approved for the amount of credit they want (or any credit at all), they certainly do not want to add to that challenge when it comes to securing their office lease. In most lease agreements, landlords will require that the tenant get a letter of credit to satisfy their security deposit requirement. These instruments are not only ineffective for the business owner from a capital perspective (as they are often fully collateralized), they also tie up credit capacity.

Banks often deduct the amount of the letter of credit for a security deposit from the total amount of credit they are willing to extend to a borrower. In an environment where small businesses already face high rates of rejection from banks and lending sources, how can they eliminate tying up credit capacity through their security deposits?

Enter Securiti. Small businesses shouldn’t have to tie up their credit capacity for security deposits and instead, should be able to use their resources to grow instead locking up capital at a bank. With Securiti, office tenants can satisfy their security deposit requirements by paying a small annual fee, instead of fully collateralizing a letter of credit at a bank. In addition, it’s an insurance product (issued by Chubb) and won’t lock up any credit capacity. From the landlord’s perspective, they are getting the same protection they would otherwise get with a letter of credit -- just with a better capitalized tenant!

Requesting a quote from Securiti can be completed online within minutes, and is much faster than a bank. As an insurance company, they underwrite all potential clients similar to a bank, but seek to differentiate themselves by understanding your credit needs within the context of real estate. In addition, Securiti is applicable to both new and existing leases, so no business owner is turned away based on where they are in their lease lifecycle