Challenges Small Business Face When Seeking Financing

Finance is the foundation of any business. Established businesses typically don’t have trouble securing business capital. However small businesses, in particular, can face serious issues with business funding. If this sounds like you, then there are three possible areas that could be contributing to your financing troubles.

Lack of Credit or Poor Credit Score

Uncertainty is the enemy of finance. Lenders want to see an established credit score before they offer funding to negate the uncertainty that comes with lending to a small business. Unfortunately, many small business owners simply don’t have the credit score needed to secure funding. This limits financing options.

If you have a low or poor credit score, it could be impossible to secure financing for your business through traditional financial institutions.

Discriminatory Interest Rates

Banks and other financial institutions often demand personal guarantees from business owners. This typically comes in the form of collateral. However, if you don’t have collateral to provide, but your credit score is good, a bank might approve you for business funding but sets astronomically high-interest rates.

Big and established companies don’t run into this issue as often. Keep in mind, a higher interest rate creates a riskier situation for you as a business owner.

No Evidence You Can Service Debt

Lenders are adamant that borrowers can service their debt. Depending on where you go and how much you’re requesting in financial support, your lender may require you to have an established revenue of at least $100,000.

You’ll be required to meet the income and cash flow requirements of your lender if you expect to receive the capital you need.

A Lack of Understanding Regarding Your Finances

Business owners should know how healthy their business is. Failing to understand your finances can lead to serious problems in securing funding. If you can, try to make sure you have an understanding of at least the following metrics:

  • Cash Flow
  • Expenses
  • Income
  • Accounts Receivable Aging
  • Accounts Payable Aging

Armed with this information, you can present a stronger case to a business funding lender.

These are just three of the challenges that small businesses face when seeking financing. The good news is, there are other financing options available to you. At Legend Advance Funding, we are dedicated to helping small businesses secure funding. Connect with us to learn more.