Top 10 Factors That May Affect Small Business Financing

by Small Business Published on: 03 May 2018 Last Updated on: 19 September 2018

Business Finance

For most entrepreneurs, a small business loan is a crucial way of financing a new business and expanding existing operations. However, it is not easy to obtain funding for any company irrespective of how long it has been in operation. There are many factors that may affect the financing decisions of a small business. For you to have the most significant chance of loan approval and success, you must identify these factors that are controllable and those that are not. Here are ten factors that can prevent businesses from getting financing and tips to counteract these barriers.

1. Working relationship :


The relationship that you have with a lender may play a crucial role in financing decisions. Most lenders want to give loans to business owners that they trust and are confident that they can repay back the money. You will have a better chance of having your loan approved if the lender understands you and your business. It is essential for companies to build a positive track record with their lender before they need cash.

2. Collateral :

If you want to successfully get traditional loans from most financial institutions, you will have to secure collateral. Most bankers will accept highly saleable or liquid assets such as investments, money, a vehicle, or a house. Businesses that do not have any tangible assets can get a loan with an SBA guarantee. To get a loan, a business must have the capacity of repaying the loan and evidence must be provided. Also, you must provide at least three years of business history and show commitment to paying the loan.

3. Technology or industry risks :

Lenders may not provide financing to specific industries or technology-oriented businesses. It is important that you talk to your banker or financier upfront regarding such realities. You can inquire about the industries that are not financed by your creditor because they are considered as high-risk industries. This will help you avoid wasting your time pursuing a loan that will never be given to your business.

4. Economic climate :

In your quest to get finances for your business, you must also consider the existing economic climate. Businesses may fail to secure funding because of loan availability and fluctuations in interest rates. If you have a working relationship with lenders, you can easily talk to them and predict your financing needs. This way, you can take advantage of lower interest rates and loan availability openings whenever they appear.

5. Limited cash flow :

Cash flow is the amount of cash that you have on hand to pay back your loan. Most lenders will look at your cash flow to gauge the financial health of your business. If you consider getting a loan for your business, you should determine your cash flow and make quarterly calculations if possible. With an understanding of your cash flow, you can quickly optimize your flow of money before you start approaching prospective lenders for a loan. Consider Sunwise Capital for the best business loans.

6. Poor credit history :

credit history

One tool that lenders will use when determining the credibility of a borrower is the credit report. Businesses may be rejected when applying for a loan if their report shows lack of diligence in paying back past debts. Sometimes, people may have poor credit scores because of reasons that may be beyond their control. However, this can be a significant hindrance, especially when seeking funding from established lenders and banks. If your business has lousy credit scores, you can try financing from non-traditional financing options because they put less emphasis on credit scores when giving loans.

7. Lack of a business plan :

Lenders require business owners to have detailed, quantitative, and organized business plan to succeed with any loan process. However, most small businesses or startups may not have a formal business plan or any plan for the future. It is crucial for companies to have an estimate of their future earnings before they apply for a loan. This way, lenders can quickly get a hint of their profitability. Also, you must be able to articulate well how the funds you are given will be used to ensure growth and development of your business.

8. Disorganization :

When approaching prospective lenders, business owners must have their act together. This means that you should have the necessary paperwork for applying for a loan in place. You may have problems with the lender if you do not have the required documents required for a loan application. It is crucial for business owners to check out the different resources available when putting their loan applications together. Using these resources will reduce the chances of you coming across as being unprepared or disorganized to the lenders.

9. Lack of expert advice :

When making crucial financial decisions for the business, most lenders will want proof to show that small business owners have sought professional advice from industry experts and knowledgeable advisers. Accountants can be an excellent source of professional information for many small business owners. Businesses can also get great financial advice from researching on websites of widely held funders or from business networking groups. Business owners must ensure that they get advice from professionals to know the type of capital that suits people within your specific industry.

10. Time in business :


A business that has been in operation for less than two years is considered to be a start-up. Start-ups are usually not qualified for most traditional bank loans. This means that the longer your business has been in existence, the more funding options you will have. However, companies can seek alternative sources of funding and can quickly get funding if they have been operating for at least four months. The amount provided will depend on the monthly revenue of the specific business.

In the small business lending marketplace today, it is now easier to get financing that you need for your business. Irrespective of the situation that you find yourself in, you will always get a lender out there who can satisfy your needs. However, you must be cautious when taking loans from any lender because you may end up with a loan that will be expensive to repay in the long run.

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Ariana Smith is a blogger who loves to write about anything that is related to business and marketing, She also has interest in entrepreneurship & Digital marketing world including social media & advertising.

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