Having A Hard Time Getting A Business Loan?

business loan and funding

Having A Hard Time Getting A Business Loan?

At some point as a business owner, you may find a need for more working capital or a business loan to consolidate bills, expand or renovate. This can be exceptionally difficult for startups and young businesses because of stringent SBA loan requirements. Following the 2008 recession, increased banking regulations have brought most lending in this sphere to a screeching halt unless you’ve been in business for several years with a substantial amount of capital already.

We have shared some of the reasons why getting funding or a business loan for your young business could be difficult:

Your business simply isn’t old enough

Many studies show that 1 out of 3 start up businesses fail within the first five years. This is why most banks won’t lend to start ups or young businesses. It’s incredibly risky in their eyes and we all know that banks do not like risk. If your business is less than two years old, it may be really difficult to obtain some kind of funding, but it’s not impossible.

Poor personal credit or little credit history

As stated earlier, banks do not like risk. Unfortunately, if you are a large share holder of a business, the bank will look at your personal credit score during the application process. Many bank loans require a personal guarantee, which means that if your business cannot afford to repay the loan, you as the business owner are responsible for repayment. If your credit score is low or you do not have a substantial credit history, the chances of the bank considering you are slim.

Poor business credit or little business credit history

Most people don’t know that business credit is even a thing. Well the banks know that it’s a thing and it is considered in the application process. The best way to build strong business credit is very similar to building strong personal credit; by applying for business credit cards and by paying your debts on time. A large portion of your business credit score is your personal credit score, so they are both very important.

Your business doesn’t make enough money

Banks and lenders want to make sure that you’re going to be able to repay the business loan, so a cashflow positive business looks much more appealing to them. This doesn’t mean that your business makes a lot of money and immediately buys new inventory or pays the bills and is back at the break even point. Positive cashflow means profit. Banks look for profit.

Your business doesn’t have enough collateral

With 1 in 3 start up businesses failing in the first 5 years of inception, banks want to make sure that if your business sinks, they have something to hold onto aside from just a legal document. To protect against this, the bank will want you to pledge something that can easily become a liquid asset in the event that you fail to repay. This could include anything from real estate (business and/or personal) to equipment and even bank accounts (business and/or personal).

You’re asking for too little

From a cost perspective, it costs the same amount of money to underwrite a $5,000 loan as it does to underwrite a $500,000 loan. The bank makes more money on the latter of the two, so why would they even want to bother with the smaller loan?

What Can You Do To Get Funding Or A Business Loan?

Don’t panic! Our sister company Choice Funding offers merchant cash advances and small business loans for businesses who have been in business for at least 6 months. Because we work with lenders that are outside the SBA circle, our requirements are a little bit more lenient.

We can accommodate those who don’t have perfect credit and provide merchant cash advances up to $500,000 and small business loans up to $2 million. Our advances and loans are based on your gross sales, making the application process much easier.

Get approved and funded in 48 hours with Choice Funding!