Almost all small businesses require loans at certain points. Yet, obtaining a loan for your small business might not be as easy as it sounds, especially when you have one or more of the following factors hindering your access to your much-needed business finance:
⦁ Weak credit history:
The recent recessions have seen a lot of banks lower their credit score requirements, but a lot of small businesses are still struggling to meet those. Many experts believe that 720 is the magic credit score number that can significantly increase your chances of obtaining a loan. Unfortunately, that number is too demanding for a number of SMBs.
⦁ Inconsistent cashflow:
A bank would obviously be more inclined to approve a loan for a small business that can deliver a steady revenue stream and consistent flow of monthly cash. Naturally, the opposite is also true – SMBs that fail to portray this consistency are often overlooked for loans and finances.
⦁ Insufficient collateral:
As part of the loan process, banks and financial institutions require a guarantee (collateral) from the business before they approve funding. A significant number of SMBs do not have the quantity or quality of collateral that is needed to obtain this approval.
⦁ High debt-to-income ratio:
A bank would do its best to distance itself from an SMB that has already obtained financing from other lenders. Since a lot of small business owners turn to multiple sources – especially during the initial phase of their business – it can make getting a bank loan from a conventional bank even more difficult.
⦁ Insufficient operational history:
Businesses that have solid and lengthy track records are preferred by banks. Banks do not want to lend to a business that has not been around for very long or, worse still, has been around for a while but has failed to earn a certain degree of credibility or success. The lack of a firm operating history is a major strike against SMBs looking to secure a bank loan.
