Common Obstacles Small Businesses Face in Obtaining a Loan
It’s no secret that owning a small business comes with a multitude of difficulties. But one of the biggest obstacles a small business faces can be getting a loan.
In fact, according to the SBA, 63% of business owners targeted banks when seeking financing. But only 27% of those respondents were successful in securing financing.
If your business is struggling to obtain a loan, here are a few reasons why:
Preconceptions and Bad Credit — Due to preconceptions from events in recent history, small businesses are already behind the eight ball in terms of creditworthiness. In the aftermath of the 2008 financial crisis, households headed by a small business owner saw their income decrease by nearly 20% between 2007 and 2010, which lead to lower credit scores.
Combine poor personal and business credit profiles with the reputation small businesses already have with many banks, and earning that loan can feel impossible.
Collateral – Lenders will likely want to examine your balance sheet before doing business with you. If you possess equipment that will depreciate, your assets might be less attractive than you think. And on some loans having inadequate collateral can doom the possibilities of success.
Another contributing factor is real estate value. One of the biggest collateral assets a small business owner can possess is commercial or residential real estate. The market crash of 2008 led to a significant decline in real estate value (and, thus, the value of assets).
Documentation — A murky paper trail can hinder you in securing financing. Many newer businesses simply don’t have a detailed business history. Even if sales are trending in a positive direction, a lender might read that as an aberration. Attractive loan candidates have accumulated years of detailed lists and documents.
But it’s not always a death sentence. Future projections and a detailed business plan can sway a lender in your favor. A well-written proposal filled with multi-year growth projections, competitor comparisons, and spending and repayment plans will help you. Without it, you could hurt your chances.
At Funding Well Capital, we understand the importance of cash flow in your daily operations. We work tirelessly to secure funding for businesses in many unique situations. What separates us from our competition is our ability to select from diverse financing options to help you attain the best loan for your needs.
Contact us today to learn more about how we can help!