Small businesses face many challenges when it comes to having the funds necessary to operate and grow. Any form of expansion, whether it’s buying inventory, recruiting new staff, expanding their markets or adding new products all require additional working capital.
Adding to the challenge is the fact that obtaining financing from a bank is very difficult for small business owners. It is quite common that small businesses are underfunded or declined by the banks. Below are some of the most common issues that banks cite when small business owners apply for financing:
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Inconsistency in cash flow
Banks prefer small businesses with a stable sales stream and predictable cash flow month after month. Small businesses that cannot show this consistency are much more likely to be refused loans.
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Inadequate collateral
Since loan applications typically involve a requirement for a suitable piece of collateral to complete the transaction and receive funding, small businesses without adequate collateral are unable to obtain financing.
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Debt-to-Gross-Revenue Ratio
Banks are hesitant to lend to small businesses that still owe money to other lenders. Many times, they would not consider lending to a company that has already taken out a loan. Since many small business owners seek credit from multiple sources, especially during the start-up process, this can be a major disadvantage when applying for a conventional bank loan.
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Inadequate credit
Having a good credit score has been one of the top factors listed in the loan requirements. Many small businesses suffer from bad credit as they get overextended running their business, and this could be a reason to be declined by the banks.
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Insufficient operational history
Banks tend to work with small businesses that have a long and successful track record. In order to obtain capital, banks need a proven track record of producing income over a specific time span. A small business will likely be rejected for a loan if it does not have a good operating history for at least a few years.
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Inadequate leadership team
Banks will oppose small businesses that lack solid top-level leadership and a visible chain of command, as this can raise questions about an organization’s structural credibility and long-term performance.
How We Can Help Overcome the Issues
While these issues may seem scary and difficult to overcome, at BPF Solutions we can help. With our credit advisory services, we engage with you to understand your business, assess potential challenges and then build strategies to overcome them. We then work to match your needs to our stable of lenders, to either find a way to fund you immediately or to fund you over time as each element of the strategy is executed. All of the challenges are potentially overcome with a customized strategy and we will help you every step of the way.
So, contact us today to evaluate your business and get started on getting you the funding you need to successfully operate and grow your business.
We will take into the deep of alternative options in the next blog.
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