Nearly 1 in 5 Middle Market CFOs Tap Bank Credit Lines for Working Capital

businessman on phone

The adoption of external working capital solutions has surged among growth corporates — commonly referred to as middle-market firms — in North America. This trend is driven by these solutions’ ability to address a wide range of needs, making them essential for companies seeking broad support in navigating today’s complex business landscape.

In the “2023-2024 Growth Corporates Working Capital Index (WCI): North America Edition” PYMNTS Intelligence delves into the working capital requirements of growth corporates with annual revenues ranging from $50 million to $1 billion. The research study, sponsored by Visa, also investigates the strategies adopted by CFOs and treasurers across different industries to effectively manage their businesses’ daily needs while ensuring ample cash flow for future growth and expansion.

According to the study, 72% of North American growth corporates that have utilized external working capital solutions reported significant improvements in their business metrics, highlighting their effectiveness in addressing day-to-day cash flow requirements needed for survival, growth and scalability.

Among these organizations, overdrafts and working capital loans emerged as the two primary solutions for managing cash flow needs, with 31% and 25% of firms, respectively, relying on them.

chart, working capital plans

The study also revealed interesting insights into specific sectors. In the fleet and mobility sector, all top-performing growth corporates strategically utilized external working capital to drive growth and development.

Similarly, 7 out of 10 healthcare top performers also relied on these solutions, further demonstrating the strategic value of external working capital in supporting the growth objectives of these firms.

To capitalize on these advantages, the study found that 90% of middle market firms in the North American region plan to access financing this year. Working capital loans, bank credit lines and overdrafts are expected to be the primary external capital sources for firms, at 30%, 18% and 14%, respectively.

Additionally, nearly 30% of North America firms intend to tap virtual cards as a working capital solution in 2024, with these cards intended to serve as the main financial working capital solution for approximately 5% of these corporations.

Given the current economic landscape in North America, marked by persistent inflation, a strong U.S. dollar, a weakened Canadian dollar and tight monetary policies, relying on these external working capital solutions has become even more crucial to help growth corporates navigate these challenges effectively.

However, despite these economic challenges, it is worth noting that middle market firms in the region have shown resilience, adapting and innovating to maintain stability and pursue growth opportunities. The study’s Growth Corporates Working Capital Index ranked North America second among all regions analyzed, indicating the effective use of external working capital for strategic objectives.

Looking ahead, the ability to continue leveraging these solutions to improve operations and drive growth will play a key role in determining the near-term success and market competitiveness of North American firms in their respective industries.