"With the bank, if it wasn't one thing it was another," Leticia Bucio says, noting that her $556,000 company posted revenue and earnings growth of 100% and 25%, respectively, in 1999. "In September of last year they wanted to put us on hold until after we had filed our taxes. I said, You know what? If you guys can't see the big picture, you're out of here."

The Bucios' experience illustrates an important trend in the world of small business lending. Banks have plenty of competition from other purveyors of debt finance on Main Street. Increasingly, commercial finance companies are doling out cash to small business owners who have been spurned by banks for having short track records, spotty credit histories, or prickly income statements where black ink ebbs and flows due to sporadic bursts of growth. That's because these firms use a slightly different approach to assess a business owner's creditworthiness. Their focus is the quality of a borrower's assets such as inventory and receivables-and the person's future ability to pay off debts.

Even many banks, attracted by the upside potential of asset-based lending, are muscling in on the action. One is First International in Hartford (1999 assets: $328 million), which may give up its state charter and reconstitute itself as a commercial finance company. In 1999 the institution sold the last of its branches in order to concentrate on asset-based lending in its niche market-small and mid-sized family-owned manufacturers, wholesalers, and distributors-from its 15 offices in the U.S. and 14 overseas. "Beginning with my tenure 13 years ago," says CEO Brett Silvers, "we began to deemphasize the classic bank stuff -- checking and savings accounts -- and focus on making asset-based loans. It's more profitable."

What does an asset-based loan cost? The expense depends on the quality of the assets securing the loan and on the paperwork involved in tracking it. But the good new is, competition has driven down rates by as much as two percentage points. The Bucios pay slightly more than one point above prime for their loan. Typically a business owner will pay more than the Bucios did sometimes a lot more to borrow against inventory or receivables because of the work involved in monitoring the value of the assets. Interest rates on loans against receivables, for example, range from two to eight or more points above prime (it was 9.5% at press time), depending on the quality of the risk, says John Fox, president of Reservoir Capital. For a startup with no record of profitability or a firm recovering from a financial setback such as an unexpected loss, rates could be as high as 25%. But for a fast-growing business with solid net worth and Fortune 1000 clients, it would be on the low end. In addition, commercial finance companies often charge commitment fees of up to 1.5% and a monthly servicing charge that can range from .025% to 1%.

How do asset-based lenders justify the high costs? "Bankers won't typically touch these risks," says Fox. "You can justify the price of these loans by the fact that they are often life preservers for those ready to sink."

Steven Melick and Erik Carrozza are CEO and CFO, respectively, of the Sycamore Group, an e-business software developer in Fort Washington, Pa., that had $3.5 million in revenues last year. They pay interest that fluctuates between 12% and 15% for a $1.25 million working-capital loan from GE Capital (like CIT, a mammoth U.S. commercial finance company with 1999 revenues of $4.44 billion) that's secured by their receivables. Founded in 1996, the Sycamore Group sees revenues grow by 300% annually, Carrozza says. The company quickly outstripped the ability of its first lender, a local bank, to finance receivables. "We started out with a $25,000 line of credit," Carrozza says. "In 18 months we scaled that up to $250,000, and we had to reapply five times. At that point we started looking around for another source because it was taking too much of my time to futz around with the bank."

To sweeten the pie, Melick and Carrozza say, GE Capital agreed to expand their line of credit to $1.5 million by the end of this year and to at least $2 million in 2001 to pace their growth. In addition, GE Capital advances against 85% of their software receivables, enabling the firm to borrow, for example, $85,000 on $100,000 in receivables-a high rate reflecting the fact that the firm has a prestigious list of customers. Banks and most other commercial finance companies, in contrast, commonly advance against no more than 75% of receivables and 50% of inventory.