While the economy is finally growing, many small businesses continue to face a number of challenges. Among the top issues restricting the growth of small businesses today is the inability to tap into available financing. In the past, small businesses often relied on traditional means for obtaining the funding necessary for growth. With the onset of the recession, traditional venues for funding suddenly dried up. Businesses quickly found that many banks were no longer willing to provide loans and those that were had significantly tightened their lending requirements. The situation became so severe that estimates indicate big banks rejected approximately 90 percent of the applications they received in 2011. Optimism has finally returned to the economy somewhat, but business owners have found that the business financing landscape is dramatically different than it was just a few years ago.
If you have experienced problems with financing your business, you are certainly not alone. As is the case with any business owner, you require funding to handle everyday things such as meeting payroll, paying taxes, and purchasing inventory. What options are available to you when you are denied funding by a bank due to insufficient collateral or a low credit score?
This is an issue that has become all too common for many business owners today. After the recession that began in 2008, lenders and banks were forced by government regulations to tighten lending requirements significantly. Many businesses were effectively shut off from lending. The reasons often vary:
Not In Business Long Enough
In reviewing an application for a business loan, banks often want to see that a business has been open for a minimum period of time. The specific amount of time may vary, but it is not uncommon for banks to require that you be in business at least three to five years before a loan will be considered in order to mitigate risk.
Not Enough Collateral
Banks typically require some type of collateral when approving a loan. Typically, the collateral will be linked to the property. This might include a mortgage or could include some other type of asset.
Insufficient Credit Score
Credit score is often one of the biggest challenges that presents a business owner from obtaining the financing he or she needs. Minimum requirements for being approved for a business loan have dramatically increased and most banks will reject your application if your credit score is not 700 or higher.
Application Processing Time
When a business is in need of funding, time is usually of the essence. Yet, the process for applying for a bank loan can be time-consuming and complex. Additionally, there is no guarantee that even after waiting weeks for a decision that a business owner will be approved for a loan.
Alternative lending has proven to be a viable option for overcoming the top issues facing businesses in need of funding today. While banks require a high credit score, alternative lenders either do not take personal credit history into account when reviewing loans or have much lower approval thresholds when it comes to reviewing credit scores. In addition, alternative lending does not require business owners to provide collateral in order to secure a business loan. With online applications, alternative lending has made it possible for business owners to take advantage of a streamlined application process that results in faster decisions.
Regardless of the size of your business or the industry in which you are involved, if you are a business owner, you likely face financial challenges. Consequently, unless you are able to tap into your own personal capital to fund the growth of your business, you need to identify a viable funding partner.