Challenges Small Businesses Face When Seeking Financing

The fact is that there are so many challenges faced when seeking small business financing. Getting a small business loan, especially as you are just starting out, can be extremely hard. Understanding these challenges can be essential in helping overcome them. This will take a close look at some of these most common challenges that small businesses will often face when trying to get financing for their business.

Not Enough Time in Business

One of the biggest and most common challenge is that you may not have had enough time in business. This can be an annoying obstacle that is all part of a larger cycle. You can’t get funding because you don’t have any business experience but you can’t get experience running a business without financing. You need to have time under your belt if you are going to get any funding for your business. For instance, the typical small business loan may require you to have been in business for at least 3 months.

Why does this matter? Lenders want to minimize their risks in order to ensure that they get their money back. Giving money to an already established business is far less risky than a business that is just starting out. There may be some high-risk options that you can look at, or you could consider other options such as crowdfunding, business grants, or angel investors.

Bad Credit

Having a low FICO score can seriously impact your ability to get financing. Lenders and banks take a look at your personal credit score to see if there are any red flags that they should be concerned with. By having a low credit score in your personal life, you are telling the banks that you can’t even manage your personal finances. If you struggle with your personal finances, how can the lenders trust that you will pay back the money you owe them?

You may still have options for funding if you have low credit; it just may be harder to find it. There are options available but they will unfortunately often cost you a lot more than if you had better credit. If you have time, you should try to improve your credit score before you apply for funding since you will have more options.

Positive Cash Flow

Businesses need a positive cash flow. Every business understands that you need to make money and a positive cash flow is your number 1 priority as a business. You need to have liquidity to move funds into growing your business or other business strategies. Businesses, especially small businesses as they are just starting out, struggle with having positive cash flow. As businesses are starting out, they struggle with a positive cash flow which can create a domino effect that ultimately starts hurting the small businesses with getting financing.

There are solutions that you can implement that will help you overcome this obstacle. One solution is invoice factoring, which is when a business will loan you the money that is the same value of the invoice and pay you immediately. Another option is to move whatever aspects of your business to a subscription-based service. By taking this approach, you are able to implement a direct bank transfer for your products or services at the beginning of the month. This can really help with your cash flow problems.

Personal Life Changes

Unfortunately, sometimes life just happens. Sudden changes that happen in your personal life can negatively impact your chances of getting approved for a loan. A major life change that often affects your ability to getting a loan is a divorce. There are many reasons why a divorce can affect your ability to get a loan. For one thing, it can reduce your credit score due to bills not being paid on time. Another reason is that your spouse may be given part of your business in the divorce settlement.

If there is an illness in the family, this can cause financial strain on you and that will hurt your ability to get financing. Other personal life changes that can hurt you include losing your business partner or some other unexpected disaster. These are things that can potentially hurt your business ownership status and/or hurt your credit score, both things that make you a potential risk for lenders.

Money Management

Small business owners often struggle when it comes to juggling everything that is required of them. They need to manage daily operations while also handling the daily financial management. This is a lot to handle, which can lead to some money management issues. They will have to manage their receipts, invoices, expenses, and all of the financials around tax time, which can give small business owners a headache.

If this is an issue that you struggle with, getting the help of a professional can be a great idea. You can find a part-time employee or a per-diem contractor that can help with the finances so that you can focus on growing your business. Plus, they will get everything better organized so that you can have the paperwork you need to get additional funding.

Unable to Access Necessary Funding for Growth

Access to funding can be very tricky. Small business owners really need to take their time and look at their funding options. Consider a few different options, including loan repayment schedules and rates. You don’t want to sign up for funding that will actually hinder your growth. Consider all of your options or ask a professional to help you decide on the best funding solutions for your business.

Conclusion

Small businesses need funding to grow, but there are a lot of challenges that you may find in your way of achieving your goals. These are some of the top challenges that you will come across on your journey of finding small business financing. You can overcome these challenges and get a better chance to achieve all of those goals that you may have for your business.

South Florida Funding Group, an alternative business funding company, offers business loans up to $5,000,000.  Bad Credit OK!  Call Now 786-544-2700

At South Florida Funding Group: WE FUND THE IMPOSSIBLE, EVEN CANNABIS!