The Real Reason Why Small Businesses Can’t Get Approved for a Loan

Oh no, not again. Yes, that’s right, I’m not going to go there… at least not for today. There’s no shortage of excuses and reasons why small businesses can’t get approved for business loans. It never fails to amaze me the coverage this topic gets especially when the national economy goes into recession or when major political races are at stake. Yes, I agree that small business growth and success is the economic back bone of the US and also, that more than 60% of the US workforce are employed by small businesses. But where I get off the group think is when it comes to the lack of financing for a small business with a business loan. In this article, let’s explore the REAL REASON that small business don’t qualify for loans and the truth may even surprise you.

It’s Deeper Than Statistics

I love numbers and even better, I love reading financial statements and the notes. The love for numbers did not become a passion for me in the world of small business lending until I came to understand that the financial statements tell the story of a business. Similar to the story behind the financial statements, there’s a story behind the statistics stating that small business owners can’t get approved for loans especially if they’re of a certain ethnic group, gender, and / or industry. I’m not completely washing away the reality that there’s a shred of discrimination in our world… hey, we live in a broken society with broken people. However, a large part of this thinking (small business owners can’t get a loan because of skin color, gender, etc) is just simply untrue. I’ve been on both sides of the fence so to speak in the world of small business lending. I’ve worked for a big bank, and I’ve worked for a not for profit community development financial institution and it’s always the same. The number one reason why small business can’t (and don’t) get approved for loans is due to the considerably large operating risk that exists in these businesses.

Operating Risk: It All Starts with You

What does operating risk mean? Well, here’s a question to bring some clarity. What speaks more to sustainability: a business that’s been operating for at least one year or a business that’s still in the owner(s) mind? I’d go with the first option. Operating risk means that you have and continue to execute on your business plan(s) and that the business is cash flow positive (i.e. returning a sustainable profit margin to cover costs and make you money). Here’s the sad truth: not many small businesses get to this point. Most if any, within two years are still trying to figure things out. OK, granted, there are levels to this particularly when you observe the diversity of businesses. However, I’m speaking to the ones that endeavor to obtain a business loan.

In closing, I offer a couple of ways to minimize your operating risk and increase your chances of getting approved for a loan. (1) Grow tough skin and learn to survive. The game of business is one of survival. Most days, things will not go your way and you just have to stay the course, be adaptable, and stay true to the business mission. (2) Never forget the 3 P’s – Production, Processes, and Personnel. Become efficient in the production of what you offer for sale, create and put in place processes to enhance production efficiency and ultimately the customer experience, and finally, hire, train, and invest in people who share your vision for the business.

Small Business Loans – Merchant Loans And Alternatives

Perhaps one of the most common ways to start your own business is to become a merchant. However, being one is no walk in the park. There are several things that you need to pay attention to, especially the liquidity of your business. In many cases, being short of capital or not having ready access to additional capital is what keeps merchants from succeeding. Having ready access to additional capital can either mean you are extremely rich or you simply know the different ways for you to have the needed funding for your small business. It is quite obvious that you are better off with the latter because no matter how much money you have today, there will come a point that you might resort to different kinds of merchant loans.

There are at least two kinds of financing options that you can take to fund your small business. Merchant loans or small business loans are perhaps the most popular and can generally allow you to borrow a large sum of money. In this way, you can start your own business or buy out one. The money you have borrowed can also be used to refinance your other business debts or it can be used to acquire other types of capital, like inventory or equipment or commercial real estate.

Other than small business loans, you can also opt to get a business cash advance. This is similar to merchant loans but generally does not require upfront fees. It also has a simpler application process than a traditional business loan and typically does not send reports to credit agencies.

The good thing about a business cash advance is it does not have fixed collection time and repayment schedules are more lenient. The funds you will be borrowing are unsecured money so there is no need to worry about collateral. Nor does it require applicants to have good business credit scores.

While it is quite true that SBA loans can generally satisfy your funding needs, it is not always easy to acquire additional capital through this method. This is why alternatives exist and it is quite a big help to turn your attention to these other options. While unsecured alternatives usually cover for the higher risk through charging higher interest rates, they are still worth resorting to because they can very well save your business from potential demise. Learn more about merchant loans and other funding alternatives today!

Various Types Of Loans Available For Business Startups

Getting financial help can be difficult for small businesses. So, loans are a great way out. Some of the loans are beneficial for startups whereas others are better suited for well-established companies.

There are various kinds of loans available these days, which we shall discuss below.

Bank Loans

For owners of small business who require a considerable amount of cash flow, bank loans are an excellent option because they usually have lower rates than any other type of financing. If any business owner is planning to avail loan from banks then they must provide complete financial information, a good business plan, and a guarantee. However, smaller local banks have easier underwriting for loans. When you are planning to take financial help from a bank, then you must take into consideration the processing time taken by banks.

Credit Cards

Many small businesses have been established with funding available from personal credit cards. This is because it is readily accessible cash, and moreover, personal credit cards are easier to get hold of than a business loan from a bank or elsewhere. This does not imply that it is the best choice for your startup or business.

When you are considering the merits of various types of loans you can avail, you need to think about interest rates which would apply. Credit cards naturally have a higher rate of interest than loans. What’s more, is making use of personal credit to support a business is dangerous. If at all the business you started fails, then you would be damaging all your credit and you will be left nothing much for your future.

Lines of Credit

Most of the banks which offer loans also offer lines of credit. The advantage of this type of funding for small business is its flexibility. It is good for additional cash flow when a particular business opportunity awaits you and you require funding. They can be easily availed in the form of credit card. By using a line of credit for various business expenses, you can keep track of the accounts used for business and for personal purchases.

Alternative Lending

You will find new players in the territory of lending funds for small business. They are called as alternative lenders. Alternative lenders provide loans to the owners in the type of quick and flexible funding.

Unlike banks alternative lenders use borrowed capital and make a broader range of advertisement like comments on social media sites, online reviews, and so on. This enables funding to be easily accessible, and most of the business owners will find out in no time if they are accepted. Borrowers usually pay a higher rate of interest in this type of funding. But, it is more advantageous for a business owner who is in need of quick cash.

So, if you are in need of funds to start your business, various types of loans can be what you can resort to.