Is your small business locked out when it comes to securing the funds you need to stay afloat?
Small businesses often have a difficult time securing loans from banks and credit unions. With all the costs that come with running a business, it’s unlikely that entrepreneurs can fund their business operations from their own pockets. Without extra funding, a business can struggle to purchase inventory, hire new employees, and go after new opportunities.
Here are the key reasons (see what we did there?) why banks won’t lend to small businesses:
Insufficient cash flow. In order to get approved for a bank loan, your business has to have a consistent cash flow to demonstrate it can repay the loan. If your business can’t show it has a consistent monthly cash flow, then it will most likely be denied funding. Banks only want to invest in a company that has the potential to grow and be prosperous.
Bad credit. Another component of the small business loan application is your credit scores. Banks will look at both your business and personal credit. If banks see your business doesn’t have the sufficient credit to repay the loan, then they will look at your personal credit score. Entrepreneurs who lack strong credit scores will probably be denied for the loan.
Lack of strong collateral. Bank loan applications require you to list your collateral. Even if the business has been in operation for over two years and has consistent cash flow and good credit, it can still be denied for a small business loan. Banks will only lend to entrepreneurs who have sufficient collateral to back up the loan. For instance, if you are renting a home or apartment a bank will most likely deny your request since you don’t own property. The collateral also has to support the size of the loan you are requesting.
Short time in operation. Businesses that have been in operation for less than two years have an exceptionally difficult time securing a bank loan. Banks will only lend to businesses that have a strong track record of success. Unlike businesses that have been in operation for several years, it’s hard for newer businesses to prove their value.
Debt-to-income ratio. If your business has outstanding debt with other lenders, then other banks will be unlikely to lend to you. Startup businesses often seek funding from multiple banks. If the debt is not paid off when you apply for another loan down the road, your request will likely be denied.
Unlike banks and credit unions, alternative lenders don’t analyze credit scores or collateral, they mainly look at a business’s monthly revenue. The application process is simple and straightforward, and often get approved the same day they are submitted. With cash advances from alternative lending sources, businesses receive the immediate funding they need to effectively run their business.
Our mission at Swift Capital is to unleash the potential of every small business by providing them with fair and convenient access to working capital. We harness data and technology alongside personalized human expertise to see the true potential in every business. Did you like this post? Tell us what you’d like to see on our blog. Email us at [email protected] or tell us here.